OPEC: Assessment of the global economy

The year 2020 witnessed an extraordinary and unprecedented turn of events that have negatively impacted the global economy. While it seemed that global economic developments were improving at the beginning of 2020, the COVID-19 pandemic hit economic momentum relatively early in 1Q20, and the highly volatile growth trend continued throughout the remainder of the year. World economic growth is estimated to have declined by 3.7% in 2020.



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Considerable fiscal and monetary stimulus in many key regions have led to a recovery in 2H20, and expected to gain more traction in the current year. The recently approved $1.9 trillion fiscal stimulus bill in the US, which comes in addition to the already more than $3 trillion fiscal stimulus package in 2020, will further support US and global economic growth. In addition, the ongoing recovery in Asian economies will support the global recovery, forecast at 5.1% in 2021.


However, the current forecast will very much depend on the near-term path of the COVID-19 pandemic. The base assumption of this forecast is that by the beginning of 2H21, the pandemic will largely be contained with the majority of the population in western economies vaccinated, with COVID-19 not posing a major obstacle for emerging and developing economies. Nonetheless, numerous challenges remain, including COVID-19 spread and the effectiveness of vaccines against mutations. Moreover, sovereign debt in most economies has risen to levels at which raising interest rates could cause severe fiscal strain.



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While not imminent, a further rise in inflation, especially in the US and the Euro-zone, may cause some tightening of monetary policies, an area that needs monitoring in the short term. Additionally, trade-related disputes, especially between the US and China, may continue. On a quarterly basis, 1Q21 growth will still be considerably affected by ongoing lockdown measures, voluntary social distancing and other pandemic-related developments. This may, to some extent, carry over into 2Q21.


However, by the end of 1H21, economic activity is expected to accelerate as the impact of the pandemic is expected to taper off. The momentum is then expected to be supported by pent-up demand, especially in contact-intensive service sectors such as tourism and travel, leisure and hospitality. The seasonal aspect of warm weather in the Northern Hemisphere and the summer travel season will add more support.


Forced household savings from lockdowns, combined with ongoing monetary and possibly additional fiscal stimulus, will add to the momentum of the rebound. The base assumption for this scenario is that by the end of 2H21, COVID-19 will largely be contained. Evidently, the COVID-19 pandemic has negatively affected global economic growth and demand for energy, including oil. As the pandemic had a major impact on the oil market balance, OPEC, together with its non-OPEC partners in the Declaration of Cooperation (DoC) took historic action to help stabilize the oil market. This proactive stance turned out to be a very important element in supporting global economic growth, after an estimated drop in oil demand of 9.6 mb/d in 2020. Oil demand is forecast to recover in 2021, growing by 5.9 mb/d.

However, this year’s demand growth will not be able to compensate for the major shortfall from 2020, as mobility is forecast to remain impaired throughout 2021. Thus, oil-intensive sectors, especially travel and transportation, will remain disproportionately weak with a larger negative impact on 2020 oil demand and a lower positive contribution to 2021 oil demand, relative to global economic growth.

Similarly, non-OPEC supply is expected to have declined by 2.6 mb/d in 2020, while growth of 0.95 mb/d is anticipated for 2021. However, as the impacts of COVID-19-related developments remain uncertain, continued responsible global policy action from all market participants, including the efforts undertaken by OPEC and the participating non-OPEC producers of the DoC, will continue to be crucial over the coming months to return markets to more stable conditions.



Source:  OPEC Report


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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.