Economic Outlook

Post-corona-boom underway

Kiel Institute Economic Outlook World, Nr. 79 (2021 | Q2) Download PDF

The global economy remained on track in the first months of 2021, despite surging covid-19 infections and renewed containment measures in many countries. The impact of the pandemic was largely confined to the service sectors. Meanwhile, the pronounced upturn in industrial production and global trade continued until spring, but has started to falter as a result of supply bottlenecks and logistical problems. The tensions in the global economic fabric are reflected not least in sharp price increases for raw materials, intermediate goods and transportation services, which have already contributed to a noticeable rise in consumer prices. Continued highly expansionary monetary policy and considerable fiscal policy stimulus, notably in the United States, but also in the euro zone, are fuelling economic activity this year and next. We expect global output (measured on a purchasing power parity basis) to increase by 6.7 percent in 2021 and by 4.8 percent in 2022, which is still substantially above medium-term trend growth. In view of the high economic momentum and higher inflation risks, we expect the Federal Reserve to start tightening earlier than previously expected. This is associated with the risk of a significant deterioration in financing conditions going forward, particularly for some emerging economies