TD Economics is raising its economic forecasts as the outlook brightens amid the ongoing rollout of Covid-19 vaccines and continued fiscal policy support.
In a new report, the bank’s economists said they now expect global GDP growth to hit 6.0% this year, up from its previous forecast of 5.5%. They also raised their forecast for 2022 to 4.8% from 4.4%.
“Beyond the first quarter, widespread vaccine distribution combined with additional policy support in some advanced economies should propel faster economic momentum in the second half of this year,” the report said, noting that its upward revision is driven primarily by the U.S., Japan and emerging markets (excluding China).
“Both the U.S. and Japan have announced massive new fiscal support measures. Japan’s hosting of the summer Olympics will also support economic activity,” said TD.
“Meanwhile, emerging markets are benefiting from relatively few restrictions, rising commodity prices, recovering global trade and accelerated vaccinations thanks to the COVAX facility,” the bank added.
At the same time, the outlook for Europe and the U.K. is more subdued, they noted, due to the slow pace of its vaccine rollout and a high degree of vaccine skepticism that “will delay its full reopening until the second half of this year.”
For Canada, TD Economics revised its growth forecast up from 4.9% to 6.0% for 2021, citing a stronger-than-expected starting point and the expectation that output will reach its pre-pandemic level in the third quarter.
A variety of pandemic-related downside risks remain in 2021. Yet, if the health-related risks are successfully subdued, “upside risks could well dominate the latter half of the year,” the report said.
These upside risks include vaccine success driving higher business and consumer confidence.
“This will have a domino effect, as improved confidence would lead to higher consumption, greater investment and a faster than expected labour market recovery,” the report said.
Stronger fiscal support also represents an important upside risk.
“This will not only favour the country that announces greater fiscal support, but also its trading partners, and by extension, the global economy,” TD’s report said. “These factors, combined, have the potential to pleasantly surprise and could lead to a 2021 that is meant for the history books…and this time, in a good way!”