As fourth-quarter data are released, and the curtain is raised on global economic performance in 2020 overall, most economists seem relieved that the results were not worse. Clearly, the forceful third-quarter rebound came to an end, giving way to slower growth, all conditioned by a resurging pandemic. The world’s largest economy, the United States, grew at an annualized rate of 4.0% in the fourth quarter, led by manufacturing. For the year, the US economy contracted –3.5%, a smaller retreat than analysts had expected, contributing to the International Monetary Fund (IMF) enhancing its 2021 US growth forecast to 5.1%.
Not surprisingly, China has again become a growth engine, the only economy to have expanded during 2020, with +2.3% GDP growth. China is leading a trade recovery: demand from China is buoying prices in energy and industrial materials, and growth in Chinese exports burgeoned in November (+21% year-over-year) and December (+18.1%). China set trade-surplus and exports records in both months, as the country is producing and shipping great volumes of electronic equipment (partly to support remote-working arrangements) and medical supplies for the global fight against the COVID-19 pandemic.
The pandemic has worsened since October, as daily new cases climbed above a half million and the daily death toll shot above 10,000. Vaccine development has been robust, and vaccination programs are getting underway in many countries. Vaccine production, however, is months from meeting program needs, which call for billions of doses. Meanwhile, at least three new strains of COVID-19 have been identified, contributing to the spread of the virus. Many European countries imposed new restrictions to slow transmission. These developments have clearly slowed the global economic recovery. With additional geopolitical challenges, including political turmoil in the United States and the last-minute Brexit deal in Europe, it is perhaps not surprising that executives tempered prior optimism in their responses to our latest McKinsey Global Survey on economic sentiment.
Turning to the most recent available economic data, retail-sales figures in surveyed economies reveal that consumer demand is reviving. In December, sales grew strongly in China (+4.6% y-o-y) and the United States (+5.1%); consumer confidence improved in China but has elsewhere remained subdued.
Economic recovery so far has been led by manufacturing, and the purchasing managers’ indexes (PMIs) for this sector, both globally and for individual economies, continue to show expansion. The services sector has been harder hit by pandemic-triggered restrictions and services (Exhibit 1). PMIs outside China and the United States reflect slower growth (or even contraction, in Russia’s case).
World trade volumes increased by 2.1% in November 2020 and 0.7% in October. As measured by the CPB World Trade Monitor, trade has now reached the level measured in December 2019. The Container Throughput Index has fallen slightly in the past two months, to 119 in December (121 in November), but remains in historically high territory (Exhibit 2).
Official unemployment rates eased in many surveyed economies in the last quarter of the year, while remaining higher than historical averages. Notable is that pandemic-induced economic hardships have affected population segments differently. In the United States, for example, official unemployment eased to 6.7% in December (from a high of 14.7% in April), but US Bureau of Labor Statistics data reveal that Black women experienced a spike in job losses of 154,000.
Among both advanced and emerging economies, consumer- and producer-price inflation generally remained low and flat. Exceptions are the eurozone, where some deflation is underway, and Brazil, where inflation rose for producer prices due to a weak real.
Agriculture and energy prices began the new year on a strong upward trajectory; prices for other commodities increased modestly. Food prices increased in all categories, with the strongest gains in food oils; food-price inflation is exacerbating food insecurity in India and elsewhere.
Oil prices have been rising since November, lately reaching $55 per barrel (Brent); the 11-month high came as Saudi Arabia announced additional production cuts. Industrial-metals prices are likewise on the rise, led by copper, which reached its highest price since 2013; these developments are the result of demand from China and the vaccination rollouts, as well as supply-side disruptions.
Stock markets rallied strongly in December and volatility indexes eased somewhat, as vaccines became available and geopolitical uncertainty began to subside. A Brexit deal—as incomplete as it may be—was finally reached between the European Union and the United Kingdom, taking effect on January 1, 2021. It is a free trade-agreement that goes beyond EU trade pacts with other countries but is, of course, more restrictive than the relationship it is meant to replace. It limits freedom of movement for people and imposes new nontariff barriers, including customs checks and a loss of free access to markets. In the United States, political tensions eased, after having boiled over on January 6, when the US Capitol was attacked by supporters of President Trump. Five people died in the ensuing violence, but the attackers failed in their apparent aim of overturning the results of the presidential election. Congress confirmed Joseph Biden and Kamala Harris as the new president and vice president at 3:41 am on January 7. On January 12, the former president was impeached for a second time, to be tried in February.
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