World economy tipped to recover to pre-coronavirus levels mid-2021

Lianna Brinded
·Head of Yahoo Finance UK
·3 mins read
Disintegration of the world globe isolated on white background. Photo: Getty
COVID-19 pandemic has heightened the risk of a global financial crisis. Photo: Getty

Global GDP is expected to return to pre-coronavirus pandemic levels by mid-2021 but the world is still at risk of a financial crisis.

According to a client note by Deutsche Bank (DBK.DE), a stronger-than-expected bounce in economic activity has given evidence for the group’s revised forecast for global economic growth but rising debt levels and any shifts in policy still put the world at a heightened risk of a financial crisis.

Deutsche Bank analysts now put global GDP to 5.6% from 5.3% in 2021.

“Global economic recovery from the depths of the COVID-19 plunge this past winter and spring has proceeded significantly faster than we envisioned,” said Peter Hooper, Deutsche global head of economic research, in the note.

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“As Q3 draws toward a close, we estimate that the level of global GDP is about half way back to its pre-virus level, and we now see that journey being completed by the middle of next year, a couple quarters sooner than in our previous forecast.”

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The coronavirus pandemic has sent shockwaves across every economy in the world. The health crisis has meant that all countries have had to place its citizens in lockdowns and find ways to open up the economy again without further giving rise to COVID-19 cases and deaths.

In June, the International Monetary Fund (IMF) warned that the world economy was set to take a hit of more than $12tn (£9.6tn) by the end of 2021 with the UK economy set to plunge 10.2% in 2020.

The government in countries like Britain have opened up the economy by encouraging people to go back to work in an office and even gave incentives, such as the Eat Out to Help Out scheme to get people to go to restaurants and spend their money through a state-funded 50% discount.

Watch: What is a recession?

During April and June this year, UK GDP saw its steepest quarterly decline since records began in 1955. While the economy started to rebound from the deepest recession on record in July, the pace of recovery slowed more than expected.

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But the economy is still in a fragile state as concerns grow over a second wave of coronavirus in the UK and potentially new lockdowns and rules that could hit business once again.

On Sunday, the government's chief medical officer Chris Whitty said that Britain was at a "critical point" in the pandemic and numbers show it is "heading in the wrong direction."

A further 3,899 daily cases and 18 deaths were reported in the UK on Sunday. The government confirmed that UK prime minister Boris Johnson spent the weekend considering whether to introduce further measures in England at least.

Whitty will hold a televised briefing at 11:00 BST on Monday.