Oliver Mangan: Recent evidence points to economic rebound after Covid restrictions lifted
A release of pent-up consumer spending demand is expected when shops are allowed to reopen.
Economic activity in many countries during the opening months of 2021 continues to be greatly inhibited by Covid restrictions.
Forecasters, though, are not scaling back their growth projections for the world economy this year.
Indeed, the opposite is happening as the outlook for growth continues to brighten with the roll-out of vaccines gathering momentum and governments providing even more fiscal supports.
The OECD’s latest economic outlook, published last week, saw significant upward revisions to its global growth forecasts. The world economy is now projected to expand by 5.6% in 2021, much faster than the 4.2% rate it had anticipated in December.Â
This represents a remarkable turnaround after a 3.4% fall last year. Recoveries from recessions usually take much longer than this. However, this is a unique cycle. The recession has not been caused by an economic shock or financial crisis, which can prove protracted.
The evidence from last summer is that economies can rebound strongly when containment measures are lifted and they re-open for business. An enormous build-up of private sector savings in many countries is expected to be spent as containment measures are lifted, providing enormous firepower for what could be a boom-like rebound in economic activity.
The eurozone economy contracted by 6.6% in 2020. The ECB has reaffirmed its forecast for around 4% growth in both 2021 and 2022.
This would leave the region trailing well behind recoveries in other major economies. There are two main reasons for this – the far slower pace of vaccine roll-out in the EU and less action from its governments in terms of fiscal supports.Â
Regarding the Irish economy, the vaccine roll-out has been held back by supply issues. Nonetheless, the ESRI expects the economy to grow by 4% in 2021, despite many sectors being in lockdown for much of the opening half of the year.
CSO data confirm that the Irish economy expanded by 3.4% in 2020, owing to a strong export performance by multinational companies. The contraction in the domestic economy was smaller than the declines in the eurozone and UK economies.
The scope for a sharp rebound by the Irish economy is not the same as elsewhere. Thus, the 4% growth forecast by the ESRI would be a good performance, given the circumstances.
