ICAEW chart of the week: IMF world economic outlook update

29 January 2021: The UK economy is expected to shrink over the three years from 2020 to 2022, compared with flat growth in the Eurozone, modest growth by the USA and relatively strong growth by China.

The IMF released updated economic forecasts this week, estimating the world economy shrank by 3.5% in 2020 with output projected to increase by 5.5% in 2021 and 4.2% in 2022. World output over the three years is now expected to see an average annualised growth rate of 2.0%.

The UK’s economy has been one of the hardest hit by the coronavirus pandemic, shrinking by an estimated 10.0% in 2020. Growth prospects are weak, with forecasts of 4.5% and 5.0% in 2021 and 2022 respectively bringing the annualised average growth rate over three years to a negative 0.4%. This contrasts with the 1.4% average growth forecast last year in the Spring Budget 2020, meaning that the UK economy is now projected to be around 4.7% smaller in 2022 than pre-pandemic expectations.

Prospects for the Eurozone countries are also disappointing, with forecast growth in 2021 and 2022 expected to bring their economies back to where they started and substantially below where they might have expected to have been without COVID-19. 

The USA economy appears to be more resilient, with growth in 2021 expected to offset the decline experienced in 2020 by a modest amount, bringing annualised growth over the three years to 1.3%.

In contrast, China expects to see annualised growth of 5.3% as it recovers from much slower than normal growth in 2020 as a consequence of the pandemic. While this is relatively strong compared with most other countries, China itself will consider this to be a relatively modest level of growth compared to the recent past. 

IMF World Economic Outlook Update – summary and selected countries

  2020 2021 2022 Average
 World output (1) -3.5% +5.5% +4.2% +2.0%
 World growth at market exchange rates -3.8% +5.1% +3.8% +1.6%
 Emerging and developing economies -2.4% +6.3% +5.0% +2.9%
 Advanced economies -4.9% +4.3% +3.1% +0.8%
 Eurozone -7.2% +4.2% +3.6% +0.0%
 Argentina -10.4% +4.5% +2.7% -1,3%
 Australia -2.9% +3.5% +2.9% +1.1%
 Brazil -4.5% +3.6% +2.6% +0.5%
 Canada -5.5% +3.6% +4.1% +0.6%
 China +2.3% +8.1% +5.6% +5.3%
 Egypt (2) +3.6% +2.8% +5.5% +4.0%
 France -9.0% +5.5% +4.1% +0.0%
 Germany -5.4% +3.5% +3.1% +0.3%
 India (2) -8.0% +11.5% +6.8% +3.1%
 Indonesia -1.9% +4.8% +6.0% +2.9%
 Iran (2) -1.5% +3.0% +2.0% +1.1%
 Italy -9.2% +3.0% +3.6% -1.1%
 Japan -5.1% +3.1% +2.4% +0.1%
 Kazakhstan -2.7% +3.3% +3.6% +1.4%
 Korea -1.1% +3.1% +2.9% +1.6%
 Malaysia -5.8% +7.0% +6.0% +2.2%
 Mexico -8.5% +4.3% +2.5% -0.7%
 Netherlands -4.1% +3.0% +2.9% +0.5%
 Nigeria -3.2% +1.5% +2.5% +0.3%
 Pakistan (2) -0.4% +1.5% +4.0% +1.7%
 Philippines -9.6% +6.6% +6.5% +0.9%
 Poland -3.4% +2.7% +5.1% +1.4%
 Russia -3.6% +3.0% +3.9% +1.0%
 Saudi Arabia -3.9% +2.6% +4.0% +0.8%
 South Africa -7.5% +2.8% +1.4% -1.2%
 Spain -11.1% +5.9% +4.7% -0.5%
 Thailand -6.6% +2.7% +4.6% +0.1%
 Turkey +1.2% +6.0% +3.5% +3.5%
 UK -10.0% +4.5% +5.0% -0.4%
 USA -3.4% +5.1% +2.5% +1.3%

For more information, read the IMF World Economic Outlook Update.

This chart was originally published by ICAEW.

ICAEW chart of the week: A square root-based recovery?

17 July 2020: Debate rages about which symbol to attribute to the shape of the economic recovery.

Chart on OBR Real GDP growth forecast. Shows huge economic hit in the first half of 2020 with potential recovery paths to Q1 2025. Upside scenario returns to previous trend by 2021, central scenario recovers but not fully, and downside is even worse.

The #icaewchartoftheweek is on the economy this week, with the Office for Budget Responsibility indicating that hopes of a sharp V-shaped recovery have receded. Instead, their central scenario is for a square root-based recovery – with economic activity recovering less quickly than originally hoped and not to the same level predicted before the pandemic took hold in the UK.

According to the OBR, quarterly GDP fell from £558bn in the fourth quarter of 2019 to £432bn before inflation in the second quarter of this year, a drop of almost 23% in the level of economic activity. Under the OBR’s central scenario GDP in real-terms is not expected to get back to where it was until the fourth quarter of 2022. At a predicted £584bn (excluding inflation) in the first quarter of 2025, GDP would be 3% lower than where it was predicted to be prior to the pandemic.

The OBR hasn’t completely ruled out a V-shaped recovery as a possibility and their upside scenario would see the economy returning to the previous trend by the second quarter of 2021. However, with job losses starting to accelerate, such a speedy return to trend seems increasingly unlikely.

The good news is that the OBR’s downside scenario, for which no symbol has yet been assigned, is not as shallow as the dreaded U-shaped recovery that some economists are worried about. In the downside scenario, economic activity recovers by the middle of 2024, unlike a U-shaped recovery that might extend into the second half of the 2020s.

In practice, the fortunes of different sectors of the economy are likely to vary, with some suggesting the recovery is more likely to be K-shaped, with some sectors stalling just as others emerge to grow back strongly following the end of the lockdown. The Government will be hoping that the fiscal interventions it has announced to support the hospitality, leisure and housing sectors in particular will help prevent the ‘full K’.

This chart of was originally published by ICAEW.