Regional Macroeconomic Landscape

THE GLOBAL ECONOMY

The International Monetary Fund (IMF) estimated that the global economy contracted by 3.2% in 2020 due to the impact of the COVID-19 pandemic. Advanced economies contracted by 4.7% while Emerging and Developing Economies contracted by 2.4%. The United States (US), United Kingdom (UK), and Canada experienced 3.5%, 10%, and 5.4% contraction, respectively. The growth outturn for Emerging and Developing Economies is skewed. If China’s growth outturn for the period of 2.3% is removed, the economic contraction is far greater for this group. After a tepid 2019 growth of just 0.2%, Latin America and Caribbean economies were hard hit by the disease and growth contracted by 6.1%.

Despite fallout in revenues occasioned by economic contraction, many governments maintained or increased spending to help cushion the effect of the COVID-19 pandemic on households and businesses. There was a reliance on debt financing to fund the budget, resulting in increased global debt levels in

2020. In the future, weak growth could amplify fiscal risks that have emerged.

Moreover, in some countries, the absence of corrective measures in subsequent periods could exacerbate longstanding structural fiscal issues, which could cascade into a debt event.

The International Monetary Fund (IMF) is forecasting growth of 6% in 2021 despite the looming headwinds from the COVID-19 pandemic. Consensuses growth forecast of 5.7% in 2021, marginally lower than the IMF’s projection. Growth is likely to be uneven across country groups and within-country groups owing to several factors, among them the pace of vaccination and how quickly various sovereigns will ease restrictive measures on the movement of people within their borders.

After contracting in 2020, advanced economies are expected to expand by 5.1% in 2021. We expect the economy in the United States (US) to grow by 6.4%; United Kingdom (UK), 5.3%; Canada, 5%; and Japan, 3.3%. We expect emerging market economies to expand by 4.0%, led by India and China, respectively, with 11.2% and 8.4% growth. For Latin America and the Caribbean, growth of 4.6% is expected, led by the Dominican Republic, 5.0%; Columbia, 5.2%; and Brazil, 3.7%. We expect growth in Venezuela to contract by 10%, the only economy in the region where output is likely to contract.

COMMODITY PRICES

In Q1:21, several commodities including crude oil, experienced a rise in prices. We expect the increase in global output to drive demand in 2021 through 2022. Based on the outlook, some economies are likely to face transitory inflation pressure, which is expected to persist for at least two more quarters. Higher shipping costs contribute to this view on inflation. We envisage that global vaccination programmes will speed up in H2:21. With that, we expect the gradual easing of restrictive measures in emerging market economies and the normalisation of commodity supplies. In a nutshell, we expect inflationary pressure occasioned by supply bottleneck to taper off.