The delicate balance nations are attempting to achieve in ramping up economic and social activity amid the COVID-19 pandemic has collapsed in India. Home to nearly 18% of the world’s population, India is now experiencing an unprecedented COVID-19 wave, a national crisis with global implications. New recorded cases hover around 400,000 daily; the official death count is above 220,000. Both statistics are believed to reflect only part of the real picture. Public-health experts describe a damaging confluence of multiplying factors, including the dismantling of emergency facilities following the earlier pandemic wave, the relaxation of restrictions on public gatherings, the presence of new virulent strains, the shortage of essential medical supplies. Progress in vaccination has been slow; vaccines are in short supply, limited ultimately by a global failure in production licensing.
The positive economic news in recent weeks presents the countervailing story to the epidemiological tragedy. Even India’s economy, though faltering, continued to show signs of revival until very recently. Nearly three-quarters of respondents to McKinsey’s latest survey on economic sentiment believe the economy is improving, both globally and in their home countries. The Organisation for Economic Co-operation and Development (OECD) composite leading indicators are pointing generally to gains in economic momentum—especially in China and the United States. On the ground, these two giants are helping drive the global recovery, with economic activity approaching or exceeding prepandemic levels. In China, the economy is expected comfortably to exceed the 6%+ growth target set for 2021. In the United States, advance estimates of the US Bureau of Economic Analysis measured growth at an annualized rate of 6.4% in the first quarter of 2021, with the economy expanding 1.6% in this quarter, half a percentage point faster than in the fourth quarter of 2020. The US growth was broad-based, but especially driven by internal consumption. The economy is expected to overtake 2019 levels in the second quarter of 2021.
The eurozone recovery has encountered further challenges amid a COVID-19 resurgence, new lockdowns, and a shortage of vaccines. The economy fell into a technical recession in the first quarter of 2021, with a quarter-on-quarter GDP decline of –0.6%, following a contraction of –07% in the fourth quarter of 2020. Forward-looking indicators support a positive outlook, however. The purchasing managers’ index (PMI) for manufacturing recorded an all-time high in April, at 62.9, revealing a significant return of trade and consumer demand. The sector has been expanding so quickly that manufacturers in the region have struggled to maintain enough supplies to fill orders.
Will productivity and growth return after the COVID-19 crisis?
Looking at high-frequency indicators, consumer confidence improved in March in most surveyed economies, though readings reflect lingering caution among populations. Retail sales surged on an annual basis in the United States and China, given the low base effect from 2020; in most other economies, however, sales were flat or in retreat.
Industrial activity is clearly improving worldwide. Global PMIs for both services and manufacturing climbed steeply in March, the fastest expansion seen in nearly a decade (Exhibit 1). In individual surveyed economies, manufacturing PMIs continue to show expansion; services PMIs tell much the same story, except in the eurozone and Brazil, where the indicators remain stuck in contraction.
Trade is another arena in which growth has been global. The most recent data are from February, when the CPB World Trade Monitor and the Container Throughput Index both measured all-time highs (Exhibit 2). Most surveyed economies individually measured increased exports; imports increased in the eurozone and Russia and declined elsewhere.
Official unemployment rates continue to decline in the United States (to 6.0% in March) and Russia (to 5.4%); the rate was steady in the eurozone (at 8.3%) while increasing in Brazil (to 14.2%).
As economic growth returns, amid conditions defined by government stimulus and accommodative monetary policy, inflation was bound to revive. In the advanced economies, that revival has been relatively modest: in March, consumer inflation jumped to 2.6% in the United States and 1.3% in the eurozone. In emerging economies, especially Brazil and India, however, prices are accelerating more rapidly. Consumer price inflation reached 6.1% in Brazil and 5.5% in India in March, while year-over-year producer-price growth has been very high in Brazil (respectively 28.6% and 23.0% in January and February).
The prices of all surveyed commodities increased in the observed periods, with the greatest rise measured in livestock prices. Food prices continue to rise steeply, with food-oil prices increasing especially sharply in March (Exhibit 3). Petroleum prices, which had fallen to $60 per barrel (Brent) at the end of March, slowly recovered in April, reaching $67 at the end of the month. Likewise, the prices for industrial metals, especially aluminum and copper, continue to rise on strong demand.
In the financial markets, inflation pressures have surfaced in the TIPS yields (US Treasuries) but suggest easing in the long term: inflation expectations reached 2.5% for medium-term (five-year) bonds, while halting at 2.3% for long-term (ten-year) bonds. Most equity markets gained in value in March and April, with some exceptions (India and Russia). The S&P 500 continues to reach new historic highs, crossing 4,000 points on April 1 and since climbing to 4,200. The US dollar remains strong overall, lately losing some value against only the euro and the real. Volatility indexes continue to ease but have not yet reached lows seen in the months preceding the pandemic.
McKinsey’s Global Economics Intelligence (GEI) provides macroeconomic data and analysis of the world economy. Each monthly release includes an executive summary on global critical trends and risks, as well as focused insights on the latest national and regional developments. View the full report for April 2021 here. Detailed visualized data for the global economy, with focused reports on selected individual economies, are also provided as PDF downloads on McKinsey.com. The reports are available free to email subscribers and through the McKinsey Insights app. To add a name to our subscriber list, click here. GEI is a joint project of McKinsey’s Strategy & Corporate Finance Practice and the McKinsey Global Institute.
