January 7, 2021

Fathom’s Recovery Watch Chart 06.01.2021: Sharp rebound in growth still expected despite new virus variants

by Fathom Consulting.

In the three weeks since our previous Recovery Watch was published two new ‘variants of concern’ (VOCs) of the virus that causes COVID-19 have emerged — one in the UK and one in South Africa. There is no evidence yet to suggest that they are more likely to cause serious disease, but both are thought to be 50% – 70% more transmissible. New cases are drifting higher in Europe, driven by rapid growth in the UK, and are rising in sub-Saharan Africa too. In response, the UK has today entered nationwide lockdown, while other countries in Europe are tightening restrictions. What is the likely economic impact? In our latest Global Economic and Markets Outlook, published at the end of November, we projected that global GDP would be broadly flat through 2020 Q4 and 2021 Q1, before rebounding sharply from Q2. A sharp contraction in UK GDP in the first quarter of this year now seems inevitable. Smaller contractions may be seen in other countries, depending on how far they can prevent the new variants from talking hold. However, so long as fiscal support packages keep pace with tougher lockdowns, our expectation of a strong rebound in global economic activity, once the most vulnerable have been vaccinated, remains in place. Indeed, after an even longer period of reduced economic activity, and with even higher savings balances, the pace of the turnaround, and the associated risk of a sharp inflation pick-up, may be even greater than we had imagined back in November.

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