After a year of lockdowns and restrictions, evidence suggests economies around the world are now on the path to recovery, although uncertainty and challenges remain.
The International Monetary Fund (IMF) once again increased its growth forecast for the global economy in April. The organisation now expects global growth of 6% in 2021, followed by 4.4% in 2022. Figures from JP Morgan also indicate that global manufacturing has reached a ten-year high.
UK
In April, Covid-19 restrictions began to lift across the UK, leading to optimism that the economy and businesses will continue to recover over the coming months. In fact, Barclays’ CEO Jes Staley said the UK is heading for its biggest economic boom since 1948 as the vaccination programme encourages consumers to go out and spend.
Figures from the Office for National Statistics (ONS) suggest that consumers have plenty to spend too. UK household wealth increased to record levels during the pandemic. Household wealth net growth grew by 9.1%, almost £1 trillion, to £11.4 trillion between 2019 and 2020.
Here are some of the headline figures that paint a positive picture of the UK economy:
- The number of workers on furlough continues to fall as non-essential shops, pubs, and restaurants reopen with some restrictions in place. In the two weeks to 18 April, 13% of the workforce was furloughed, down from 17% when compared to the previous fortnight.
- UK construction activity rose at the fastest pace since 2014 in March. The IHS Markit Purchasing Managers Index (PMI) rose to 61.7 (a reading above 50 indicates growth), up sharply from the 53.3 recorded to February.
- Retail sales increased by 5.4% in March month-on-month, with the strong growth seen in clothing sales (17.5%).
- The CBI industrial trends survey found that manufacturing optimism jumped at its quickest pace since 1973 as firms anticipate a surge in output and new orders.
As restrictions continue to lift in May, it’s expected that the economy will benefit even further. Of course, some businesses are still struggling and a rise in Covid-19 cases could push recovery plans off track.
While the challenges of the Covid-19 crisis appear to be fading, Brexit continues to present uncertainty. The impact of the pandemic means it’s difficult to weigh up the full effect of the UK leaving the EU.
Exports and imports have naturally been affected by leaving the EU bloc. UK exports to the EU have almost halved this year. In January and February, exports were down 47% when compared to the same two months in 2020, according to Eurostat. EU exports to the UK have also suffered but the fall hasn’t been as steep at 20.2%.
JP Morgan also warned that higher costs could force banks to move out of London, adding that the Brexit process was not positive for UK GDP.
Europe
The eurozone is back in a technical recession after posting GDP contractions for two consecutive months. GDP fell by 0.6% in the first quarter of 2021, following a 0.7% contraction in the final quarter of 2020 as the economic area was affected by a new wave of Covid-19.
Despite this, there are signs that the economy will improve over the coming months. For example, the March IHS economic composite PMI continued to increase, rising from 53.2 in March to 53.7 in April. It’s the highest the manufacturing PMI has been since 1997. Economic and consumer confidence is also rising. According to European Commission’s latest Economic Sentiment Indicator, confidence is now above the long-term average for the first time since the Covid-19 outbreak on the continent.
Shweta Singh, from economic and investment strategy research provider TS Lombard, added that the downturn has bottomed out and she expects a recovery to start in May.
US
The US also remains on the road to recovery and the Federal Reserve announced it will stick to near-zero interest rates and its bond purchase strategy to continue to support the economy.
Overall, figures from the US are positive. Between January and March, US GDP rose at an annualised rate of 6.4%, up from 4.3% from the three months prior. The latest data is the equivalent of 1.6% of quarterly growth. The boost has been linked to stimulus spending and the roll-out of the vaccination programme. This was supported by US retail sales jumping 9.8% in March, the biggest monthly jump in ten months and much stronger than the 6% expected.
Looking ahead, consumers are also confident about the future. According to the Conference Board, US consumer confidence reached a pandemic high in April of 121.7, up from 109 in March.
Another key figure from the US this month is the trade deficit reaching a record high. While this can be a sign of economic struggle, in this case it’s because other economies aren’t recovering as fast as the US. According to the US Census Bureau, the trade deficit is now $90.6 billion, rising for the third month in a row. In March, imports climbed by 6.8% to a record $232.6 billion, while exports increased by 8.7% to $142.1 billion.
Asia
China continues to post a strong recovery this year. In the first quarter of 2021, GDP grew by 18.3% when compared to a year earlier. The first quarter of 2020 saw Covid-19 forced lockdown and travel restrictions in China. The growth in the first quarter is the best year-on-year growth since 1992, when China first started publishing data.
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