World economy back at pre-pandemic level: Survey

The global economy has surpassed its pre-pandemic peak, data survey firm IHS Markit said on Monday, as the recovery accelerates thanks to vaccination and the end of pandemic-related restrictions.

IHS Markit, which conducts monthly surveys of businesses that are highly valued by the market as a leading indicator of economic activity, forecasts that with 6.0 per cent growth this year the global economy will post its biggest expansion in nearly 50 years.

“The global economy has reached an important milestone in the second quarter of 2021, surpassing the pre-pandemic real GDP peak attained in the fourth quarter of 2019,” the firm said.

The second quarter ends at the end of June.

The Asia-Pacific region recovered from the pandemic recession at the end of last year thanks to the resilience of China’s economy.

IHS Markit’s economists estimated that US real GDP hit a new peak in May. The firm estimates that Africa and the Middle East will return to pre-pandemic GDP in the third quarter that begins in July.

Europe and Latin America will complete their recoveries in the final quarter of this year.

“As recovery from the Covid-19 recession is completed, the global economy is moving into the sweet spot of the current expansion,” said IHS Markit’s executive director for global economics, Sara Johnson.

“World real GDP growth is picking up from an annual rate of 1.5 percent quarter on quarter in the first quarter to rates of 6.0-7.0 percent over the remainder of 2021,” she added.

IHS Markit’s 2021 global GDP growth forecast is in line with that made by the International Monetary Fund in April.

However, the IMF emphasised the unevenness of the recovery and said it expects many nations will not recover to pre-pandemic levels until 2022 or 2023. Both the OECD and World Bank have also warned about the recovery leaving some nations behind, especially given the lack of vaccines in many countries.

IHS Markit acknowledged that Covid-19 flare-ups remain a risk to economic recovery in places where vaccination has proceeded slowly.

It also pointed to constraints on the recovery posed disruptions in the supply of certain goods, including semiconductors used in electronics goods and cars.

Its survey “found that supplier delivery times lengthened in May to the greatest extent in survey history.”

Supply disruptions are one reason behind a jump in prices.

IHS Markit said it expects to consumer price inflation to rise to 3.3 percent this year before dropping to 2.7 percent next year as supply conditions improve.

Investors have become increasing worried that the rapid recovery inflation may prompt central banks to remove stimulus support and raise interest rates faster than they have stated previously.

“In the United States, the eurozone, and other advanced economies where inflation expectations are well-anchored, monetary tightening can be delayed in the short term but not indefinitely,” said IHS Markit’s Johnson.

Meanwhile, the International Monetary Fund backed the Swiss National Bank’s (SNB) expansive monetary policy, which aims to rein in the safe-haven Swiss franc, in an annual economic review released on Monday.

“Directors agreed that monetary policy should remain accommodative, with clear communication to help anchor inflation expectations, and mindful of potential risks to financial stability,” the IMF said on its website.

“They concurred that foreign exchange interventions should be limited to mitigating excessive appreciation and deflationary pressures, provided trend appreciation is allowed,” it added.

The SNB signalled last week that monetary policy would stay ultra-loose for the foreseeable future, saying projected higher inflation was no reason to change course.

The IMF gave the Swiss authorities good marks for their “strong, timely, and multi-pronged policy response” to the COVID-19 pandemic.

“Noting the still high uncertainty, Directors stressed the need to maintain supportive policies until the recovery is on a firm path. They underscored the importance of rebalancing the policy mix and fostering green, digital, and inclusive growth,” it said.

While welcoming the resilience of the Swiss banking sector, IMF officials underlined the need to monitor asset quality and risks closely, particularly those related to residential and commercial real estate.