• The ongoing Covid pandemic continues to weigh on economic indicators. Possible delays in the vaccination rollout and the threat of new variants of the virus produce uncertainty that is felt in all sectors.
• GDP decreased by 6.1% in 2020 in the EU. This is a stronger reduction than the one forecast a year ago.
• While the recovery path is still uncertain, GDP forecasts for 2021 and 2022 point to a recovery with expected growth rates of 4.4% in 2021 and 4% in 2022.
• The price of oil increased at the end of 2020 as a rebound effect, while iron ore prices saw an increase of 26% between 2020 and 2021 as a result of the Chinese recovery.
Gross Domestic Product (GDP) outlook
- The Covid pandemic continued to have a detrimental effect on citizens’ lives in the year 2020 on a global scale. The crisis weighed heavily on many economic sectors. Global production slowed down sharply as a result of the various shutdowns in both advanced and developing economies. World GDP decreased by 3%, with a more severe decline within the EU (-6%).
- Due to the reopening of economies in the year 2020 before the second wave of contagion, the GDP decreased less severely than expected in the International Monetary Fund’s (IMF) October 2020 World Economic Outlook (WEO).1 According to the WEO published in April 2021, the global growth projection for the current year is 6%, moderating to 4.4% in 2022.
- Possible bottlenecks and the possible emergence of new, more dangerous virus mutations are critical points that could endanger and thus delay economic recovery or even lead to economic scarring. For this reason, uncertainty is predominant and forecasts for the future must be even more cautious than usual.
- The political action of governments is proving to be a decisive variable in the recovery. The outlook for the US economy has been revised upwards, in light of the massive relief packages that the Biden administration has allocated to combat the health and economic crisis.
- Conversely, it appears that the economic crisis will perpetuate in Europe, both as an effect of the vaccination bottlenecks at the beginning of the year and due to the inability to provide comparable relief measures. This is leading to increasing diverging paths between the USA and the EU.2 An additional uneven cadence in reopening and reclosing the economies tied to the bottlenecks stated above, result in varying recovery paths.
FIGURE 1: PERCENTAGE CHANGE IN GDP, CONSTANT PRICES
Source: IMF World Economic Outlook Database, Outlook from April 2021: World Economic Outlook Database, April 2021 (imf.org)
- Global trade is expected to increase by 8.4%, while tourism is likely to suffer from the uncertainties of the pandemic for a longer period. Protectionist tendencies that already existed before the pandemic could slow down the global economic recovery.
Commodity prices and output in IWT related branches
- In 2020, the restrictions on domestic and international mobility provoked a decline in oil demand. After the positive start of the vaccination rollout, prices rose by 41% in 2021 compared to 2020. However, futures markets indicate that this increase is a rebound effect and that oil prices will resume their downward trend in future years, reaching 52 US dollars per barrel in 2026.3
- Furthermore, difficulties encountered due to the vaccination campaigns and the second wave led to a weakening in demand for oil at the beginning of the year 2021, highlighting once again the feeling of uncertainty that was affecting every sector. The very moderate oil price level that is forecast for the coming years reflects also projections that GDP will remain well below the pre-pandemic trend path until 2024 for most countries. However, if economic recovery is faster and stronger than expected, then the oil price trajectory would certainly be more upward orientated.
- Metal prices have increased since 2017, and this rise has accelerated in 2021. The acceleration was driven by a higher demand for basic metals on a global scale and by the rebound effect of Chinese recovery. With regard to iron ore, its price saw a steep increase of 26% between 2020 and 2021, continuing on a positive trend upheld by the recovery of Chinese steel production, which accounts for the largest part of steel production on a global scale today. Overall, metal and iron ore prices are expected to remain on a similarly high level in the coming years as it has been the case in 2021. The share of European steel production within world production is decreasing further, while China’s share continues to increase.
- Food prices have seen a general increase over the past year, particularly pronounced in the case of cereal prices and vegetable oil prices. Several factors drove this trend in 2020, including poor harvests in Europe and in the Great Plains region of the US, strong demand from China and a restrictive tax on wheat exports planned by Russia, one of the largest producers of wheat in the world. The smaller harvest result in Europe tends to be felt not only in terms of higher prices, but also in terms of a weaker grain transport in 2021 on European inland waterways (See chapter 8).
FIGURE 2: CRUDE OIL (PETROLEUM), DATED BRENT, LIGHT BLEND 38 API, FOR UK, US $ PER BARREL
Source: IMF World Economic Outlook Database, Outlook from April 2021