Pace of recovery is “generally surprising”, particularly among advanced markets with high vaccination rates

With vaccination campaigns ongoing, trade credit insurer Atradius’s Economic Outlook forecasts a 2021 growth rate of 6.2%, higher than was expected six months ago.

As most economies have not fully reopened yet, fiscal support is often partially extended in 2021, while monetary support also remains loose, despite rising inflationary pressures. 

While the economic cost of the pandemic will likely be felt at some point, the pace of the recovery is generally surprising to the upside, certainly among advanced markets with high vaccination rates.

Atradius economists forecast advanced economies will grow 5.8% in 2021, more than making up for the cumulative drop in GDP in 2020. Some of the uncertainty that hung over the market last year has disappeared.

The outlook for the United Kingdom is also substantially brighter than it was at the beginning of 2020. Consumers are driving the recovery in the UK, with strong growth in the hospitality sectors, despite trade growth with the EU falling behind on Brexit and pandemic uncertainties.

Covid-19 infections are rising again in a number of major advanced markets due to the more transmissible Delta variant. However, the health crisis is less acute than it was in 2020, as vaccination programmes are preventing higher hospitalisation rates.

The Delta variant is a larger threat for emerging markets with lower vaccination rates. Emerging markets in Asia had the pandemic relatively well under control, until the Delta variant started to spread in recent months. They have to prevent infections from spreading further, but Atradius reports growth prospects for the region remain relatively strong.

Latin America has among the highest infection rates in the world, but benefits from looser restrictions and a robust US recovery.

New variants may threaten recovery

The current forecasts from Atradius assume governments will maintain their grips on the pandemic and will be able to effectively contain new surges of the virus alongside continued vaccine rollouts, unhampered by supply constraints.

However, if vaccines are less effective against new virus variants like Delta than expected, governments may have to re-impose restrictions later this year. This creates a downside risk to positive forecasts and would reduce consumption opportunities and drag on GDP growth in 2021 and 2022.

John Lorié, chief economist of Atradius commented: “It will be a challenge for governments and central banks to navigate a path out of the pandemic. The recovery prospects look good amid rising consumer demand and fiscal stimulus, but rising inflation indicates there are supply-side issues that need to be overcome.

”While we expect inflation to revert back to normal levels in 2022, high inflation remains a downside risk, especially if it triggers a forced tightening of monetary policy that would hamper the recovery.”