Here's what could happen to the global economy this year

The global economy is on the verge of a “great rebound” and will grow by around 5% this year.

That’s one of the predictions made in the PwC report Global economy watch: Predictions for 2021.

The research also forecasts that some of the world’s largest economies may struggle to return to pre-pandemic levels by the end of the year, signalling that the growth and recovery we may see are unlikely to be evenly distributed.

Green push

The report also projects that the US rejoining the Paris Agreement on climate change will help focus global efforts on balancing economic growth with environmental stewardship.

“2021 will be the first year where the three main economies or trading blocs of the world – the US, the European Union (EU) and China – will refocus their efforts to fighting climate change,” the reports’ authors say.

Blending economic growth with climate-friendly development is one of the themes of China’s most recent five-year plan, and the EU is due to release its first tranche of grants and loans, worth around 5% of Eurozone GDP over five years, PwC says.

Green bonds are predicted to become an area of growing interest, according to the report. Currently, bonds to help finance green activity make up around 5% of the global fixed income market. This year, PwC says, the value of issued green bonds could exceed $500 billion for the first time.

Fast, uneven growth

Globally, PwC anticipates growth of approximately 5%, which it describes as “the fastest rate recorded in the 21st century.”

However, it sounds a note of caution on two fronts.

First, as the report explains, that projection is based on a number of assumptions about the global response to the pandemic. The availability of vaccines and continued efforts on the part of national and regional governmental bodies to provide financial support where needed will greatly impact the recovery.

On that, PwC expects more prolonged lockdowns, particularly in northern hemisphere countries which could force economic output in some economies to contract in the early part of 2021.

Secondly, report writers stress, the potential 5% global growth will not be distributed evenly. Growth will be noticeably higher in some places and absent in others. China, PwC believes, is poised to do particularly well as economically, it is already ahead of where it was pre-COVID.

This contrasts with the experience several developed service-based economies are likely to encounter. The UK, France and Spain are “unlikely to recover to their pre-crisis levels by the end of the year”. The same is likely to be the case for economies where the export of capital goods is a major activity – Germany and Japan are two such examples.

Other forecasts from the PwC report include: