It is a year since the world started to come to terms with the reality of life amid a global pandemic. Stock markets initially crashed, but global indices have since flourished, with the US Dow Jones, S&P 500 and Nasdaq Composite indices all reaching record new highs and Japan’s Nikkei 225 index closing above 30,000 for the first time in 30 years.
The OECD (Organisation for Economic Co-operation and Development) has upgraded its estimate for world GDP growth in 2021 to 5.6%, citing vaccine rollout and government stimulus, particularly in the US, as providing a major boost to economic activity. World economic output is now forecast to reach pre-pandemic levels by mid-2021.
In the UK, the economy shrank by a record 9.9% during 2020, its largest annual contraction since the early 1700s. UK GDP grew by a slightly better than expected 1% in the fourth quarter, and is now forecast by the OECD to grow by 5.1% in 2021 and 4.7% in 2022.
With a matter of days left before the end of the transition period, the UK and EU finally reached a post-Brexit trade deal. UK companies can continue to sell goods in the EU market without tariffs or quotas, but there has been significant disruption as businesses adapt to life outside the Single Market and Customs Union.
The benchmark FTSE100 Index experienced its worst calendar year performance since 2008, ending 2020 14.3% lower, and the FTSE250 fell by 6.4% over the year. However, Sterling reached a 3-year high against the dollar in February as the UK’s impressive vaccine rollout continued. Well over 50% of the UK adult population have now received at least their first vaccination, and the Government has announced that all restrictions in England could be lifted by 21st June.
The eurozone’s economy performed slightly better than had been expected during the final quarter of 2020, shrinking by 0.7%. Both Spain and Germany managed to register positive growth of 0.4% and 0.1% respectively, while France contracted by 1.3% and Italy by 2.0%. Over 2020 as a whole, the euro area posted an economic contraction of 6.8%. The OECD has forecast growth for the eurozone of 3.9% in 2021 and 3.8% in 2022.
Former President of the European Central Bank (ECB) Mario Draghi took the helm of Italy’s government during February. The move is widely seen as a positive for the Italian economy and the eurozone as a whole, providing the prospect of stability after months of political turmoil and high Covid-19 infection rates.
Ireland was the only country in the eurozone to post positive growth in 2020. The Irish economy grew by 3.4% during the year, despite one of the toughest lockdowns in Europe, on the back of record growth in the export sector.
In the US, Joe Biden was inaugurated as the 46th president of the United States on 20th January, and his $1.9 trillion “American Rescue Plan” passed into legislation in March. The US Federal Reserve sharply increased their 2021 growth expectations for the US economy from 4.2% to 6.5% but highlighted that interest rates are likely to remain close to zero until 2024.
China was the only major economy to grow in 2020, albeit at its slowest pace in more than four decades. Growth over 2020 was reported as 2.3%, and the OECD is forecasting growth of 7.8% for 2021 and 4.9% for 2022, with China now potentially overtaking the US as the world’s largest economy as soon as 2028. India is expected to overtake the UK to become the fifth largest economy in 2024, and then also overtake Germany and Japan to become the third largest by 2030.
Closer to home, Northern Ireland’s economic output grew by a record 15.5% in the third quarter of 2020, following a record 14% drop the previous quarter. The NI Composite Economic Index figures are yet to be released for the fourth quarter, but a small decrease is expected, with overall figures for 2020 expected to show a similar contraction to the UK as a whole of around 10%.
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