- Excessive money printing is fueling inflation
- Covid risks could hinder economic growth in rich countries
- 1970s-style stagflation could return, crippling economies
This autumn, major economic research institutions published their economic outlooks for 2021 and beyond. Forecasts for this year had to be revised down a little, but there is wide consensus that global gross domestic product (GDP) will surpass its pre-pandemic level this year and that the world economy will probably keep growing at a rate of between 4.5 percent and 4.9 percent in 2022. The numbers for most of the economically advanced G20 countries are even somewhat better than the global average (see table below).
It would therefore seem that the 2020 recession is fully in the rearview mirror and the recovery well on track. But the numbers should be taken with a grain of salt.
The contraction of global GDP in 2020 – by 3.1 percent according to the International Monetary Fund or 3.4 percent according to the OECD – seems surprisingly low. The official global Covid-19 death toll was nearly 2 million last year (2021 has already seen 3 million more). Moreover, according to the International Labour Organization the decline in hours worked in 2020 was equivalent to 255 million full-time jobs.
The numbers for this year imply that the world economic recovery should be strong overall, but also unequal, even among the G20 countries. The euro area will not yet reach its pre-Covid GDP level by the end of this year, while the United States, South Korea and China will.
Nevertheless, major economic institutions’ figures show that almost all economies will return to solid growth next year and beyond. Whether that will happen, however, is highly uncertain. In its October outlook, the IMF acknowledges that the “balance of risks suggests that growth outcomes – over both the near and the medium term – are more likely to disappoint than to register positive surprises.”
The IMF mentions three major risks or uncertainties: “the evolution of the pandemic, the outlook for inflation, and the associated shifts in global financial conditions.” Each one of these could lead to a contagion that would bring the global economy to a state of slow growth or stagnation, possibly combined with persistent inflation.