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Global Economy is Between Deflation and Cautious Optimism

Global Economy is Between Deflation and Cautious Optimism

 

With the prevalence of uncertainty in scenarios for the future of the global economy until the end of this year and next year, international economic institutions have been making predictions of what the world will be like until the end of 2021.

 

The global economy has gradually begun to emerge from its recession caused by the Coronavirus pandemic since March, however the continued spread of the virus has slowed much more than the growth of the economy after its spread again in some countries, which led to a return to a partial closure.

It seems that the world still has a long way to reach the level of natural economic growth in the light of the implementation of government measures to prevent the virus, which makes companies lose the desire for new investments.

 

But there are some reasons for hope, as virus detection tests have increased, treatments are improving, and vaccine trials are taking place at an unprecedented rate, and some have reached the final testing stage.

The decline in economic growth in the second half of this year is expected to be somewhat less severe in the light of the emergence of signs indicating a faster recovery in the third quarter of the year, although the decline will remain significant in 2020.

 

According to the International Monetary Fund data, global growth is expected to reach -4.4% in 2020, which is a less severe contraction than predicted at the beginning of the pandemic, especially in advanced economies, as activity began to improve more quickly than expected after the general closure had been eased in May and June, as well as indications of a stronger recovery in the third quarter of the year, global growth is expected to reach 5.2% in 2021.

 

The advanced economies were more affected than emerging and developing economies, as the economy in developed countries declined by -5.8%, while it declined in emerging and developing countries by -3.3%, and with the suggestion that the Coronavirus pandemic will recede enough to allow the lifting of domestic mitigation measures in 2021. The economy in developed countries will grow by 5.2% in 2021, while in emerging and developing countries it will grow by 6.0%, and the biggest credit for this increase is to China.

China’s strong recovery since late February, which continues at a steady pace, indicates positive GDP growth in 2020 despite shrinking by -6.8% in the first quarter and steel demand in China is expected to increase by 8% in 2020, supported by stimulating government infrastructure and a strong real estate market in 2021.

 

While manufacturing in advanced economies that had only just begun to recover from the slowdown in late 2019, is slipping again due to the pandemic. Even with the recovery that occurred after reopening economies, it may lead to bridging the gap in pre-pandemic levels, but steel demand in advanced economies remains low by -14.4% in 2020.

 

In 2021, the recovery in steel demand in developing economies is expected to be less than normal but it will be faster than in advanced economies, driven by investment in infrastructure to reach -12.3% in 2020, and to recover by 10.6% in 2021.

 

After this rapid and unexpected shock from the Coronavirus pandemic, the global economy will remain between deflation and cautious optimism until this pandemic is brought under control.

 

Dr. Kamel Djoudi