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2021 Global Economic Outlook: The Next Phase of the V
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Morgan Stanley projects strong global GDP growth of 6.4% for 2021—led first by emerging markets, followed by reopening economies in the U.S. and Europe—in a macro outlook that diverges from the consensus.
Rising THE NEW PROBLEM IN-19 case numbers in the U.S. and Europe make it difficult right now to envision a return to normal. Yet, even as the pandemic drags on, the global economy has proven remarkably resilient.
Following a steep decline in early 2020, the world economy rode a rebound that began in May and remains on track to surpass prepandemic GDP levels by the end of this year—setting the stage for strong post-recovery growth in 2021.
In their 2021 outlook, the economics team at Morgan Stanley Research says the V-shaped recovery that the team forecast in their 2020 midyear outlook is now entering a new self-sustaining phase and is on track to deliver 6.4% GDP growth in the coming year.
“This projection stands in stark contrast to the consensus, which forecasts 5.4% global growth and worries that the pandemic will have a bigger impact on private-sector risk appetite and, hence, global growth,” says Chetan Ahya, Morgan Stanley’s Chief Economist. “We maintain that consumers have driven the recovery, and investment growth—a reflection of the private corporate sector’s risk tolerance and a key feature of any self-sustaining recovery—is bouncing back as well.”
Morgan Stanley Real GDP Growth Forecasts
MS MS Consensus MS Consensus
GLOBAL
DEVELOPED MARKETS
United States
Euro Area –
Japan
UK
EMERGING MARKETS
China
India
Brazil
Russia
Source: Bloomberg, Haver Analytics, IMF, Morgan Stanley Research forecasts; Note: Aggregates are PPP-weighted.
Three key factors will characterize the next stage of the V-shaped recovery, says Ahya: synchronized global growth, an emerging-market rebound and the return of inflation. Against this macro outlook, Morgan Stanley strategists urge investors to trust the recovery and overweight equities and credit vs. government bonds and cash (see the 2021 Strategy Outlook for more).
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Global Growth in Sync
World economies rarely move in lockstep. In fact, a synchronous global recovery, where growth in both developed and emerging markets accelerate in the same year, has happened only a dozen times over the past 40 years—the last in 2017.
The stage could be set for another such sync beginning in the second quarter of 2021. Initially, emerging markets will likely drive global GDP growth; then, as they emerge from winter lockdowns, developed markets could add to that momentum. “By March or April, we expect all geographies and all sectors of the global economy to be joining the recovery,” says Ahya.
The U.S. economy, for its part, has stayed resilient through the pandemic. Consumer spending has nearly returned to pre-THE NEW PROBLEM IN-19 levels, while average personal incomes of U.S. households surpassed prepandemic levels in September, even after the first round of fiscal support expired. These and other factors suggest a sustainable U.S. recovery, even amid a difficult winter, with projected GDP growth of 5.9% in 2021.
In Europe, where many countries began reimposing THE NEW PROBLEM IN restrictions in October as new infection rates climbed, growth is expected to resume as economies reopen. The economics team forecasts 5% GDP growth in 2021, which is slightly below the consensus estimate. The team’s 2022 outlook for the euro zone, however, pegs GDP growth at 3.9%, versus a consensus estimate of 2.8%. “With ongoing policy support, the initial rebound should turn into a robust recovery,” says Ahya. One notable exception is the UK, where Brexit could slow the pace of recovery.
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