Global Economics Intelligence executive summary, February 2021

Economic recovery is driven by manufacturing and trade, with surging demand from China; vaccination programs make progress, if slowly.

Countries are now able to assess the damage to economic growth wrought in 2020 by the restrictions put in place to control the spread of the COVID-19 virus. All GEI-surveyed economies went into reverse gear in the early months of the year; only China was able to control the virus sufficiently to come out of 2020 with positive economic growth (+2.3% year-over-year). The US economy experienced a GDP contraction of –3.5%; the eurozone as a whole contracted –5.4% (flash estimate), with contractions of –5.0% in Germany, –8.3% in France, –8.8% in Italy, and –11.0% in Spain. The Russian economy, propelled by energy exports, experienced a milder contraction of –3.1%; Brazil’s contraction is expected to be –4.7% and India’s –7.7%.

Economic activity mirrored the fluctuations in pandemic restrictions: many countries loosened restrictions after midyear and experienced strong third-quarter growth. As the number of COVID-19 cases surged again, measures were reimposed, curtailing growth in the last quarter of the year. China was, of course, the exception, as it had controlled the virus early in the second quarter; by the last quarter, the economy was humming at 6.5% y-o-y growth. To a certain extent, China’s success has radiated outward, with demand from China helping to support global manufacturing and trade. This dynamic was underscored in January and February by some deceleration in global indicators in consequence of the new-year holiday in China.

In the most recent available data, consumer-sentiment indicators were subdued or pessimistic in most surveyed economies; in China, however, consumer confidence strengthened. Retail-sales growth was very strong in the United States (+5.3% month-over-month), aided by individual stimulus payments; in China, retail sales expanded 4.6%; elsewhere, consumer spending retreated or is making slower progress (Exhibit 1).

Retail-sales growth was strong in China and very strong in the United States, aided by stimulus checks; elsewhere progress was slow.
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As measured by global purchasing managers indexes (PMIs), growth in both manufacturing and services eased in January. Among surveyed economies, manufacturing PMIs remain strong. Services PMIs in the United States and Russia experienced strong growth; in China, the indicator slowed in advance of the new-year holiday; for the eurozone and Brazil, contraction is indicated.

World trade volumes now exceed prepandemic levels: as measured by the CPB World Trade Monitor, global volumes increased 0.6% in December 2020 and 1.6% in November; the indicator showed a trade expansion of 11.5% in the third quarter of 2020 and 4.0% in the fourth quarter (after contractions of –2.6% and –11.7% in the first and second quarters, respectively, figures revised). The Container Throughput Index declined slightly to 119 in December (121.1 in November); a seasonal retreat was measured in Chinese ports.

Official unemployment rates have been declining in surveyed economies in recent months, which is certainly good news. Economists and business analysts are digging deeper, however, to uncover underlying labor-force challenges amid the COVID-19 crisis. Many of these predate the crisis but have been exacerbated by it. In the United States, for example, one clue is in the labor-force participation rate, which fell steeply in early 2020 and has only partly recovered (Exhibit 2).

The unemployment rate in the United States has dropped steeply from its crisis high of 14.8%—but party because labor-force participation has not recovered.
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For the first time in a long while, an upward trend can be observed in prices, with the potential for rising inflation. Consumer and producer prices have so far risen only slightly in the United States (and are still below the targets set by the US Federal Reserve). In the eurozone, prices even remain deflationary. However, in some emerging economies, prices are beginning to move upward, with an especially noticeable jump in producer prices in Brazil. The prices of many commodities began moving upward in the last quarter of 2020 and have continued to rise in the new year. Natural gas and heating oil prices surged during the stormy winter in the Northern Hemisphere; OPEC+ production limits and demand from China pushed oil prices higher ($67 per barrel, Brent, on February 25). Industrial-metals prices are on the rise as demand from China increases; the price of copper reached its highest level in a decade (Exhibit 3). The overall food price index (FAO) has continued to rise, reaching 113.3 in January, with prices climbing for cereals, food oils, and sugar.

Industrial-metals prices are on the rise as demand from China increases; the copper price reached its highest level in a decade.
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In the financial markets, equities, which generally surged in the fourth quarter of 2020, lost ground in January 2021 before resuming their climb to new highs in February. The US dollar held its value against the euro in February, while the pound sterling gained back some recently lost value. Volatility indexes eased in February: the VIX for equities fell but is still about double its precrisis reading. Yields on US government bonds increased sharply in February, and inflation expectations (as reflected in TIPS yields) have risen to their highest level in seven years. Central banks have kept key interest rates unchanged so far in 2021.

The “second wave” of the COVID-19 pandemic, if such a term can be used, reached an apogee on January 8, when 845,000 new cases were reported globally. The daily record for COVID-19 deaths of 17,610 was set about two weeks later, on January 20. Since then, these figures have dropped by more than half—which is to say, they are still higher than during the April 2020 peak. The difference now is that many more people have caught the virus (reducing population vulnerabilities), and a number of effective vaccines are available in many countries. Most, however, are struggling to acquire and administer doses. Progress varies significantly. India administered 12 million doses by February 23, less than 1% of the adult population; at that time in the United States, 45 million people had received at least one dose (of a two-dose vaccine), around 18% of the population. China’s vaccine progress is somewhere in between, but the country has already brought the virus under control in other ways: in China, that is, only 281 cases are active (February 24) and only four people have died since April 2020. Executives’ perspectives on the economic outlook amid the pandemic are regularly discussed in “The coronavirus effect on global economic sentiment.”


McKinsey’s Global Economics Intelligence (GEI) provides macroeconomic data and analysis of the world economy. Each full 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 February 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.

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