Global Economic Review

2019-2021 was anticipated to be a challenging period globally with an increased expectation on governments worldwide to grow economies at a faster pace. There were challenges contributed by oil demand and subsequent prices, political unrest, climate change and natural disasters, including the coronavirus pandemic at the forefront. 2021 will have a poignant focus on economies recovering from the effects of coronavirus, which significantly contributed to many already fragile and volatile markets. AECOM Middle East explores the response across the world and tracks key data as we look ahead to 2021.

The real GDP growth for 2020-2021 is inversely presented when compared to 2019 predictions. 2019-2020 looked forward and expected tensions to settle between major economies, international trade and investment. This was in order to pick up the pace and for GDP growth to be restored after increased demand in emerging markets and developing economies (EMDE’s). Forecasts from The World Bank Group – Global Economic Prospects report (2020), described that the toll the coronavirus pandemic has had, as the virus slowed economic activity around the globe, calls for policymakers to limit the harm, recover and rebuild better and stronger than before. World GDP is expected to contract by -5.2 per cent in 2020, whilst 2021 is forecasted to see growth of 4.2 per cent. The 2021 forecast is dependent on controlling the pandemic with global health and policy action, protecting vulnerable populations and refining countries measures to prevent and cope better in the future. Advanced economies are predicted to contract by -7 per cent in 2020 with a growth of 3.9 per cent for 2021. Vulnerable nations within EMDE’s will be under strain with inadequate health care provisions that are reliant on international financing and lower per capita incomes. EMDE’s GDP is expected to contract -2.5 per cent in 2020, while regaining growth momentum of 3.9 per cent in 2021.

The value of exporting goods from one country to another is a key component of a country’s GDP, as well as measuring the development of their economies, employment opportunities and increasing wages and raising the standard of living. Slight growth is forecasted globally in 2020 to 3.7 per cent, with advanced economies growing at a change of 3.1 per cent and emerging markets at 4.8 per cent. The anticipated volumes for 2021, and looking forward to the 2024 forecasts, suggest that growth will maintain and be similar to 2020 levels. In the early 2000’s, developing economies recorded an increase in their share of world trade through exports of goods and services, but this has plateaued in recent years. China, India and Singapore all account for more than 40 per cent of the developing economies’ services exports. 2020 has seen a decline in exports of goods and services linked to the widespread lockdowns and transportation disruptions causing repressed demand. Although pre-crisis business activity levels may not be visible until beyond 2021, the IMF forecasts are optimistic that economies will see some growth in 2021 and beyond. With the potential of a coronavirus vaccine announced in Q4 of 2020, this may improve current global business conditions. Economists are not expecting an overnight revival, but expect that the vaccine will contribute to a hopeful recovery in the future.

The value of exporting goods from one country to another is a key component of a country’s GDP and measuring the development of their economies, creating jobs and employment opportunities increasing wages and raising the standard of living. Slight growth is forecasted for the World in 2020 to 3.7%, with advanced economies growing at a change of 3.1% and emerging markets at 4.8%. The anticipated volumes for 2021 moving forward to 2024 forecasts that growth will maintain similar to 2020 levels. In the early 2000’s developing economies recorded an increase in their share of world trade through exports of goods and services, but this has plateaued in recent years. China, India and Singapore account for more than 40% of the developing economies’ services exports. 2020 has seen a decline in exports of goods and services linked to widespread lockdowns and transportation disruptions causing repressed demand. Although pre-crisis business activity levels may not be visible until beyond 2021 the IMF forecasts are optimistic that economies will see slight growth in 2021 and after. A potential Covid-19 vaccine was announced in Q4 of 2020, which may go some way in improving current global business conditions, economists are not expecting an overnight revival but expect the vaccine perhaps will go some way toward a hopeful recovery in the future.

The global composite Purchasing Managers Index (PMI) sunk to a record low of 26.5 in April 2020, gradually recovering in Q3 2020 to an average of 51.7. This result is three points higher than the average seen 12 months previous. The results witnessed during Q3 reflected a drop in worldwide manufacturing and services activity, correlating with the reduced global trade. The fall during 2020 was the greatest recorded, including comparisons to the start of the global financial crisis in 2008 and trade tensions in 2018-2019.

Commodities

Commodity prices were heavily impacted by the reduced demand in Q2 2020. This saw the price of oil fall sharply by 47.9 per cent before beginning its recovery. A major cause of this was due to the imposed global travel restrictions, and in some instances a total cessation of air travel during 2020, extremely affecting transport industry demand. Both oil prices and other commodities are expected to increase in 2021 with non-energy commodities expected to grow at a faster pace. Prices and other commodities are expected to increase in 2021 with non-energy commodities expected to grow at a faster pace.

Oil prices

Oil prices fell to their lowest levels in Q2 2020 as countries world-wide entered enforced lockdowns, leading to most economic activity to a halt. As such, the oil demand plummeted and previously agreed production cuts were extended to try and encourage healthy oil prices during the pandemic. Oil demand is forecasted to rebound in 2021 and thereafter, but at a lower rate than the 2019 average. Future oil consumption and demand statistics will be in the balance, with compliance to global production cuts being a significant factor alongside improved global economic activity.

Metals

Metal prices fell in 2020 due to a reduced demand during the pandemic striking into Q2. Copper, aluminium and iron ore prices recovered by Q3 2020, and we have witnessed higher levels for copper and iron ore compared to 2018/2019. The demand is heavily impacted by global construction activity that was impacted by the ongoing pandemic and is expected to start recovery during 2021. By Q3 2020 demand had increased due to construction infrastructure activity in China. China acquires 50 per cent of the metals produced across the globe, they are the largest buyer of copper and remain the world’s largest producer and consumer of steel.

GLOBAL ECONOMIC MARKET

As forecasted by the International Monetary Fund (IMF), the global economy is estimated to contract by -5.2 per cent by 2020-year end. This is lower than predicted in Q2 2020. 2021 looks to strengthen after global activity picks up momentum with a forecast of 5.4 per cent growth. There are reservations around the growth rate, with much emphasis on private consumption demand and private investment due to general economic uncertainly and the effect of social distancing and lockdowns. Trade tension between China and the USA remains a risk for the global economy despite the ‘Phase One’ trade deal agreement between the countries during 2020, according to The World Economic Forum.

The IMF’s usual purpose and message is to discourage countries’ expenditure at the risk of increasing debt. However, Deloitte analyses that since post (peak) pandemic the message has altered. There is encouragement for wealthier nations to increase the public spending focused on public investment. This includes digital infrastructure and clean energy — with the aim to aid the recovery from the crisis. Coronavirus will remain a present risk with disruption to trade and supply chains.

Trade deals

During Q4 2020, one of the biggest trade deals in history was signed and agreed between China, Australia Japan, New Zealand, South Korea and ASEAN leaders. The deal comprises 14 countries, 2.2 billion people and a staggering 30 per cent (value as 2019) of the world’s economic output, with respect to terms of trade in goods and services, investment and new rules within electronic trade and property. The countries’ leaders announced that the deal will support recovery from the 2020 pandemic; creating job opportunities, strengthening supply chains and prospering from transparent and inclusive rule-based trade and investment arrangements.

The following are major risks identified for 2021 and beyond.

Global Risks

Coronavirus pandemic

During 2020, the pandemic caused a political and economic impact worldwide and is a continual risk for 2021. The pandemic heightened vulnerability for emerging markets and may continue to impact commodity markets and oil price. Latin-America was one of the least prepared regions to deal with the virus and they struggled to contain the outbreak across the region. The economies were already unsettled due to slow economic growth, low-quality public services and vulnerable middle classes expecting increased state spending on social services.

###South Asia tensions

Tensions between India-China remain a risk across military, diplomatic and technology fronts.

UK-EU Brexit:

Brexit remains an ongoing risk for the UK economy following the transition period from the beginning of January 2021. Results from the negotiations will outline and detail how business procedures will operate.

US/China tension:

Trade tension between the US and China will remain a risk even with a new President-elect. Competition is expected to rise within the technology sector with restrictions placed on tech exports to and from China and exposed supply chains.

Digital cyber attacks:

As new technologies are set to reshape economies with a drive towards autonomous vehicles and the use of drones, artificial intelligence alone is expected to boost global growth by 14 per cent by 2030. The digital world will be vulnerable to cyberattacks, as already seen with critical infrastructure (energy, healthcare and transportation) and geopolitical and economic uncertainties due to a lack of governance.

Extreme weather/climate change

Extreme weather caused by climate change will urge Governments to make commitments in reducing their countries emissions. An emphasis will be placed on oil, gas firms, airlines, car manufacturers and the food industry as this will remain a prevailing risk in 2021 and beyond.

Biodiversity loss

Biodiversity loss is caused by climate change, pollution, deforestation and habitat loss. This risk threatens global ecosystems, affects livelihoods, food supplies, income and disease.

Natural disaster

Natural disasters can be a preventable risk, and solutions such as reforestation, education, technology governance and economic support could aid to mitigate and reduce the risks caused from global warming, pollution and mining.