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In fits and starts, the wheels of the global economy are beginning to turn again. The year-and-a-half-long winter of discontent across the globe is fading away as Covid-19 vaccination programs make inroads and summer slows down infections in Europe.

But will the grand reopening also be great? Patchy, more like it...shaped by vaccine security, regional politics, the use of excess savings and supply-side bottlenecks, among other factors.

So what can we expect from the second half of 2021? In its latest economic outlook, Allianz Research identifies some likely trends this year. 

The big shot

Never before has a virus managed to divide people into pro- and anti-vaccine groups like the coronavirus has. It has also clearly demarcated the haves from the have-nots.

While immunization in the developed world could give a booster shot to advanced economies, under-vaccination in Asia and emerging markets will keep global recovery desynchronized. You also cannot rule out stops-and-starts if the next waves of infection push up cases more than expected. However, such situations are expected to be moderate. The hope is that we have left behind the most severe waves. 

Covid-19 sanitary and vaccination situation

allianz research vaccination
Source: Our World in Data, Duke University, Euler Hermes, Allianz Research

Multifaceted recovery

How good the going gets, will depend on where you are. Amid high-pressure economics in the U.S. and low-pressure economics in Europe, the global GDP is expected to grow by 5.5 percent in 2021.

A clear outperformer is expected to be the U.S., the only economy where growth could exceed its pre-Covid path from the end of the year. In Europe, the return to pre-crisis levels will take a year longer and the return to the pre-Covid-19 growth path an extra four years – if it happens at all.

Global trade is set to rebound strongly in 2021, but bottlenecks will lead to short-term hurdles. In terms of volume, trade is forecast to rise by 7.7 percent, after falling by 8 percent in 2020. In value, trade will rise by 15.9 percent, rebounding strongly from a drop of 9.9 percent in 2020, supported by favorable base effects, a stronger-than-expected momentum in the first months of the year and expectations of robust exports out of Asia-Pacific, as well as strong imports in the U.S., Europe and China. 

Real GDP growth forecasts (in percent)

allianz research GDP growth
Source: Euler Hermes, Allianz Research

Revenge spending

Many of those who stayed employed last year, saved a bundle as most avenues of spending were shut down. Now with restaurants, entertainment services, travel and retail industries opening up, the work-hard-party-hard crowd can’t wait to make up for lost time.

‘Revenge spending’, as it is being called, is happening for sure albeit cautiously. Residual savings amount to 500 billion euros in Europe, and $1 trillion in the U.S. According to Allianz economists, pent-up consumption could account for 3 percent of GDP in the U.S. and the UK in 2021, and around 1.5 percent in most European countries.

But ‘once bitten, twice shy’ is still a thing. Hoarding behaviors have not disappeared altogether as people remain wary.

Disruptions in global supply chains have also not been completely restored. Suppliers’ delivery times and container prices from Asia are at record highs. With fiscal stimuli in the U.S. and the Eurozone boosting demand for goods, prices are expected to remain high until the end of the year before demand starts normalizing and production capacities ramp up.

What inflation?

True: costs will remain high until the end of 2021 as supply chain bottlenecks persists for a bit. False: this inflation is sticky. Global inflationary pressures are at record high levels but they are mainly driven by energy prices and dollar appreciation, which should prove to be temporary. The situation might continue until 2022, when pressures from labor shortages reduce and input and asset prices cool down. 

Stimulus to stay

For now, most central banks will continue to offer support to their respective economies.

In the U.S., the Federal Reserve could hint at tapering from the second quarter of 2022 but a rate hike is unlikely before the second half of 2023. Closer home in Europe, the European Central Bank will have to keep its pockets open during the early phase of recovery even if the Eurozone inflation overshoots the expectations. After September, the central bank is expected to give more clarity on what life would look like once its Pandemic Emergency Purchase Program (PEPP) draws to a close. 

The politics of Europe

While it may not be as drastic as in other parts of the world, the politics of Europe is in flux.

Economic heavyweights Germany and France are going to polls soon while Italy, as the recipient of the largest share of the EU Recovery Fund, has the task of proving that the EU integration really works. The prospect of a lasting fiscal integration in the EU depends on how well the Italians recover from the pandemic carnage. If they do, Italy could indeed regain political credibility in the eyes of the ‘frugal’ skeptics.

Given the uncertainties, Europe will stick to its mantra of slow and steady. Any active fiscal or monetary tightening is not expected before the second half of 2022 and any investments in green and digital will be more ‘evolutionary’ than ‘revolutionary’. 

Green recovery

Every crisis also opens up new opportunities. The huge recovery programs will give a boost to the much-needed green transformation of the economy.

According to projections from the International Energy Agency (IEA), for a net-zero emission compatible transition, investments need to increase rapidly in electricity generation, infrastructure and end-use sectors while fossil fuel investment must drop sharply.

For a transition to a cleaner model of growth, a real new industrial policy will have to be defined, including plans for generating new fiscal resources, subsidizing the transition, protecting domestic producers and investing in infrastructure. Between 2021 and 2050, annual energy sector investment has to increase by around 1 percent of global GDP from current levels to enable a net-zero energy transition. With $1.3 trillion, investment in renewable electricity will need to top the highest amount ever spent on fossil fuel supply ($1.2 trillion in 2014).

Projected global average annual energy investment needs for net-zero energy transition

allianz research green investments
Source: International Energy Agency (2021), Net Zero by 2050, IEA, Paris: Net Zero by 2050  Scenario. *CCUS: Carbon capture, utilization and storage; **EV: Electric vehicle
For a deeper look into the economic landscape of this year and insights into regional trends, click here for the ‘Grand Reopening: New Opportunities, Old Risks’ report. 
The Allianz Group is one of the world's leading insurers and asset managers with more than 122 million* private and corporate customers in more than 70 countries. Allianz customers benefit from a broad range of personal and corporate insurance services, ranging from property, life and health insurance to assistance services to credit insurance and global business insurance. Allianz is one of the world’s largest investors, managing around 714 billion euros** on behalf of its insurance customers. Furthermore, our asset managers PIMCO and Allianz Global Investors manage about 1.7 trillion euros** of third-party assets. Thanks to our systematic integration of ecological and social criteria in our business processes and investment decisions, we are among the leaders in the insurance industry in the Dow Jones Sustainability Index. In 2022, over 159,000 employees achieved total revenues of 152.7 billion euros and an operating profit of 14.2 billion euros for the group***.
* Including non-consolidated entities with Allianz customers.
** As of June 30, 2023.
*** As reported – not adjusted to reflect the application of IFRS 9 and IFRS 17.

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Lorenz Weimann
Allianz SE
As with all content published on this site, these statements are subject to our cautionary note regarding forward-looking statements:

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