Monthly economic brief: July 2021

GDP growth outlook

Optimism for the economic outlook this year has continued to strengthen.

• At a global level, the IMF’s latest forecast from July projects world GDP to grow 6% in 2021 following the fall of 3.2% in 2020.^[26] At an aggregate level, this remains unchanged from their previous forecast in April, however reflects an upward revision to their growth forecasts for Advanced Economies (up 0.5 percentage points to 5.6%) and a downward revision to their forecast for Emerging Market and Developing Economies (down 0.4 percentage points to 6.7%) with the IMF highlighting that differences in vaccine access and policy support have contributed to greater divergences in the expected pace of recovery across countries.
• At a UK level, the IMF forecast UK GDP to grow 7% in 2021 (revised up from 5.3% in April). This is broadly in line with the Bank of England’s May forecast^[27] of 7.25% and the latest average of new independent UK forecasts^[28] published by HM Treasury which points to UK GDP growth of 7.1% in 2021. Reflecting the general improvement in optimism for the outlook, supported by stronger than expected activity in the first half of the year, the delivery of the vaccination programme and easing of restrictions, the average new forecast for 2021 has risen each month since February and is up 0.3 percentage points from the average new forecast in June.

• At a Scotland level, the latest forecasts from the Scottish Fiscal Commission^[29] in January 2021 projected Scotland’s GDP to fall 5% over the first quarter of 2021 during lockdown and to grow 1.8% over 2021 before returning to pre-pandemic levels at the start of 2024. As in the UK as a whole, the latest outturn data for Q1 2021 show that economic output fell by less than many independent and official forecasts had expected in the first quarter, with Scotland’s GDP falling by 2.1%. The Commission will publish their next set of forecasts on 26 August.
• Reflecting the stronger outturn data, the Fraser of Allander Institute revised up their GDP forecast for 2021 to 5.9% (up from 3.6% in March) and moderated their 2022 forecast to 3.5% (down from 5.6% in March). Overall, GDP is forecast to return to pre-pandemic levels by July 2022, a quarter earlier than had previously been forecast.^[30]