The Recovery Gains Traction As Unevenness Abounds
The economic data flow since our last report has been better than we expected into early 2021. Despite a longer and stronger wave of COVID infections in late 2020 (mainly in the West, as East Asia and Australasia continued their impressive outperformance in containing the pandemic), fourth-quarter GDP numbers came in almost universally above our forecast. Our interpretation is that in many countries, governments and citizens learned to better manage the effects of the virus. As a result, we raised our estimate for global GDP growth in 2020 by 50 basis points.
Moreover, the uneven pattern of output since the beginning of the pandemic persisted. Namely, relatively strong household spending drove growth in the U.S. and relatively strong industrial production and exports drove growth in East Asia (including a tech trade boom). Europe is in between, as it benefits from an adapting but still constrained consumer and the restart in world trade. Emerging markets mostly resembled East Asia, with continuing resilience of manufacturing and commodities sectors underpinned by strong foreign demand.
Although a blanket of snow covered much of the U.S. this winter, the country's economy has warmed. Signs show that a strong recovery, albeit delayed, is starting to take hold as strengthening sentiment readings indicate that people are ready to let the good times roll.
An improving vaccination outlook, faster reopening schedule, and the $1.9 trillion stimulus "shot in the arm," along with a $900 billion package approved in December, all point to a seismic shift in the U.S. economic outlook relative to where it stood in December 2020. Our forecasts of real GDP growth for 2021 and 2022 are 6.5% and 3.1%, respectively, up from 4.2% and 3.0% in our December report, with our 2021 GDP forecast (and now the Fed's) targeting the highest reading since 1984.
With both business and consumer confidence well into expansion territory, the U.S. economy is on the mend. Even accounting for a possible resurgence of the virus later in the spring, it's hard to see a contraction this year that is severe, broad, or long-lasting enough to be considered a recession by the National Bureau of Economic Research. Our risk for recession over the next 12 months is now 10% to 15%, down sharply from the 20% to 25% range in January and around the U.S. economy's long-term unconditional recession risk average of 13%.
The eurozone economy is less sensitive to social-distancing restrictions than a year ago. Lockdowns are now restricting economic activity by about 10% since fourth-quarter 2020, according to S&P Global Ratings' estimates. That's less than one-third of the impact in second-quarter 2020, and we see the correlation between growth and lockdown stringency diminishing over time (see chart 1). The eurozone economy shrank only 0.7% in fourth-quarter 2020 despite a second wave of COVID-19. That was a much milder than our expectations of a 2% contraction back in December. Reflecting the lessened sensitivity to lockdowns, we still expect the eurozone economy to recover its pre-crisis levels of activity by first-quarter 2022 and made small revisions to our forecast for eurozone GDP growth to 4.2% for 2020 and 4.4% for 2022 (see table 1 at the end of the article).
S&P Global Ratings upgrades growth forecasts for Asia-Pacific to 7.3% for 2021 from 6.8% previously. A faster-than-expected global vaccine rollout, a large dose of U.S. stimulus, and upside surprises in trade and manufacturing push our forecasts higher and offset recent weakness in household spending. We expect consumers to power the recovery later in 2021 as gradual vaccine coverage lifts confidence and spending on services, creating jobs and boosting incomes.
S&P Global Ratings has raised its 2021 growth forecast for emerging market (EM) economies. We now expect real GDP growth in EMs (excluding China) to average 6.4% this year, after a 5.4% contraction in 2020 (see table 1). This is 50 basis points (bps) higher than in our previous round of projections, and follows a milder-than-expected contraction in 2020 (see table 2). Our 2022 EM growth forecast is broadly unchanged in aggregate. Overall, this suggests that the level of output in EMs (excluding China) will be 1.2% higher in 2022 than in our previous expectations.