Global economic growth set for strongest pace in 50 years, expected to expand 6.1%: BOS

THIS year's global economic growth could be at its strongest pace in five decades, following strong rebounds first in China and now the United States and United Kingdom, according to the Bank of Singapore's (BOS) chief economist Mansoor Mohi-uddin.

The world economy is expected to expand 6.1 per cent this year, according to BOS estimates, after contracting 3.2 per cent last year as a result of the Covid-19 pandemic.

Global growth in the last five decades averaged around 3 per cent, Mr Mohi-uddin said, noting that he is anticipating a very strong rebound this year.

China's rebound has peaked and is likely to slow down, but it is still going to grow at a faster clip of 8.7 per cent this year, up from 2.3 per cent in 2020, he said.

Meanwhile, the US and UK have had very fast vaccine rollouts from the first quarter, which have correspondingly led to a strong rebound in their economies.

The US could grow 6.8 per cent after shrinking 3.5 per cent last year, while the UK could bounce back from a 9.9 per cent contraction last year with a 6 per cent expansion this year.

"We do know that in Asia here, we are seeing unfortunately fresh virus waves which have caused some restrictions in Japan, tragically India received very strong virus waves, but also here in Singapore and in South-east Asia and even Taiwan," Mr Mohi-uddin said during a virtual briefing on BOS's economic and investment outlook for the second half of 2021.

"That's clearly a short-term risk to the outlook, but we don't think that activity is going to be anywhere near as impacted as it was last year during the first round of lockdowns," he said.

This is because restrictions this time are much more targeted, with firms, families and employees all able to adapt better than when the pandemic struck, making the global growth outlook "extremely supportive of risk assets".

At the same time, central banks have been introducing very "stimulatory" monetary policy since the crisis began last year, and Mr Mohi-uddin believes central banks are likely to continue to be dovish despite the rebounds in economic activity.

"We don't think the Fed will taper its quantitative easing until the start of next year, and we don't expect the People's Bank of China to formally raise its benchmark interest rates this year either," he said.

Even with central banks being dovish, governments are still supporting economic recoveries with very large budget deficits, as is the case in the US, UK, Japan and the euro zone, and this has further boosted outlook for risk assets, he added.

Mr Mohi-uddin is bullish about "Asia-4" - a grouping that consists of Hong Kong, Singapore, South Korea and Taiwan - estimating growth to come in at 5 per cent this year, up from a contraction of 0.8 per cent. Even though Taiwan and Singapore are fighting fresh waves of the virus, he said these economies have generally had strong records in controlling the pandemic.

Indonesia, Malaysia, the Philippines and Thailand, collectively "Asean-4" are likely to lag, with a possible 4.4 per cent growth after a sharp 4.5 contraction last year, and because new virus waves have been harder to control in these economies, he said.

He expects India to grow 9 per cent this year, up from a 6.9 per cent contraction last year, even though the country is currently struggling to contain a new wave caused by a more transmissible variant.

However, he added that he is closely watching India's development given the uncertain situation.

"The lesson's clearly there's no trade-off between trying to contain the pandemic and supporting growth. You have to contain the pandemic first to get your economies to recover," he said.