Stimulus bill of 900 billion USD plus would be expected to raise U.S. GDP growth to more than 5 percent next year; without stimulus, growth expected to be 3 percent

After enduring its deepest recession in 74 years in 2020, the global economy is expected to rebound in 2021, according to the annual Top-10 Economic Predictions released by IHS Markit (INFO) , a world leader in information, analytics and solutions.

IHS Markit’s top prediction for 2021: a successful, widespread COVID-19 vaccination program is expected to enable a growth of 4.5 percent.

The rapid deployment of effective vaccines and reopening of economies should gradually unleash a new wave of spending on travel and services, driving robust growth in the later part of 2021, said Sara Johnson, executive director, global economics, IHS Markit (INFO). After a 4.0 percent decline in 2020, the global economy is expected to expand 4.5 percent next year, with global output expected to reach a new peak.

The report’s second prediction shows a divergent timeline for the economic recovery, with a return to economic growth varying widely across regions. Mainland China recovered in the second quarter of 2020. Recoveries to pre-pandemic levels are forecast to take until 2023 or 2024 in Japan and several major European economies. While unemployment rates are expected to fall in most regions in 2021 as output recovers, Western Europe is expected to see a rise in joblessness as public funding of furlough programs diminishes.

IHS Markit’s third prediction for 2021 is the shift in focus of investors and policymakers from COVID-19 to the impact of climate change, forecasting the trend in ESG issuance to continue next year.

We expect to see continued scrutiny of the ESG contributions of new investments and an uptick in the use of sustainability-linked issuance, continued Johnson. Meanwhile, policy support for renewable energy from key governments and declining costs for wind, solar and battery power is forecast to accelerate the energy transition and restrain hydrocarbon demand and prices.

Other Top-10 predictions include:

• Monetary policies should remain accommodative: Policy rates in the United States, Eurozone, the United Kingdom and Japan are expected to remain near or below zero well beyond 2021.

• The global financial sector should avoid major crises next year: In advanced economies, expansionary monetary policies are expected to keep term debt costs sharply lower.

• Finished goods prices are expected to accelerate in 2021: Increases in commodity prices in the second half of 2020 will be pushed downstream for the next six to nine months, leading to higher prices for finished goods.

• The U.S. economy is forecast to start 2021 slowly, accelerate in the second half: If another modest stimulus bill is implemented soon, and a highly successful COVID-19 inoculation program is well underway by summer, full year real GDP growth is expected to exceed 4.0 percent next year, with a reasonably good probability of growth reaching above 5.0 percent in the second half of 2021. A more significant stimulus bill of more than 900 billion USD would be expected to raise full year U.S. GDP growth to more than 5.0 percent next year. However, without additional fiscal stimulus, and if lockdowns are implemented to contain the latest surge of infections, real GDP growth is projected to be near 3.0 percent in 2021, with greater downside risks.

• Europe’s 2021 annual growth rates are expected fall short of expectations: The COVID-19 virus’ prevalence and related containment measures will continue to hinder the recovery early in 2021. Lagged increases in business failures and unemployment is forecast to restrain growth as policy support diminishes, though we expect a pronounced vaccine-driven pick-up in eurozone growth rates from mid-year. Eurozone real GDP is projected to rise about 3.6 percent in 2021, with the return to pre-pandemic levels not expected until late 2022.

• IHS Markit (INFO) expects Mainland China’s economy to accelerate to its strongest growth rate in recent years but the rebound to wane: The expected launch of effective COVID-19 vaccines and pent-up demand will help the Chinese economy expand 7.5 percent in 2021, its highest rate since 2013. After the cyclical rebound, the economy is forecast to return to the deceleration path that began in 2012, as productivity growth slowed in response to stalled economic reforms.