2021 UK and Global economic outlook
07/01/21
2021 UK & Global economic outlook: lowest number of births in the UK since records began predicted; first decline in London's population this century: global & UK turning point in the fight against climate change.
- We expect the health, social and economic effects of the pandemic to result in a ‘baby bust’, where the postponement of pregnancies translates into a dramatic decline in birth rates in 2021;
- A shift away from city-living is likely to both increase the number of people moving out of the capital, and decrease the number of people moving in;
- By the end of 2021, the majority of electricity generated in the UK could be from renewable sources, and one in eight cars newly registered in Great Britain are likely to be electric or hybrid;
- Global green bond issuance is expected to top $500billion for the first time;
- The global economy in aggregate should revert to its pre-crisis level of output by the end of 2021 and expand by around 5% in market exchange rates. This would be the fastest rate recorded in the 21st century, however, the recovery will be uneven across sectors, countries and income levels and could be more bumpy than initially anticipated as the virus mutates and evolves.
The UK could see a “baby bust” in 2021 and the annual birth rate dipping to the lowest level since records began, according to PwC’s annual economic predictions report.
The report finds that the unprecedented nature and size of the economic shock could negatively impact family planning. Back in April, an ONS survey revealed that 42% of people thought their household finances would get worse in the coming 12 months and, in a PwC survey from December, 19% of respondents stated that they expect to lose their job in the next year. Nine months later and with uncertainties continuing, this is expected to translate into fewer births in 2021.
Hannah Audino, economist at PwC, said:
“A structural decline to the birth rate will depend on the level of scarring in the labour market and the pace of recovery. A longer recovery will reduce peoples’ expectations of their lifetime income, which could result in people deciding to have fewer children. The effects of lower births won’t be felt for decades, but if the pandemic causes a permanent decline in births, the long-term challenges associated with the UK’s ageing population, such as greater pressure on public services and lower economic growth, could be brought forward.”
Labour market concerns will continue to be felt throughout 2021, with PwC’s report predicting that the UK’s unemployment rate will record its largest ever quarterly increase in Q2. Under our ‘slow recovery’ and ‘quick recovery’ scenarios, the UK’s annual GDP growth rates range from around 2.2% to 4.8% in 2021. This means that most of the output loss caused by the first national lockdown would be recovered by the end of 2021 under the 'quick recovery' scenario and by the middle of 2023 under the 'slow recovery' scenario. The economy is expected to continue this trajectory, accelerating to around 5.1% to 6.3% in 2022 before slowing down to about 1.7% and 2.0% in 2023. The UK economy could take until Q1 2023 to recover to pre-crisis levels under the ‘quick recovery’ scenario, and by the middle of 2024 under the ‘slow recovery’ scenario.
Women are expected to remain disproportionately affected by the impact of the pandemic, with the gender pay gap likely to increase in 2021. Although the UK’s gender pay gap has been gradually declining, from 26% in 2000, to 19% in 2010 and to 16% in 2019, there is evidence to suggest that this trend could be reversed in 2021. A recent PwC survey reveals that 28% of women say their pay has decreased as a result of the pandemic, compared to 22% of men, and these disparities are likely to worsen once the government’s furlough scheme comes to an end as women make up a bigger share of employees in shut down sectors.
Strikingly, London’s population could decline for the first time in the 21st century. Drivers of this would include city-dwellers rethinking their living situations in light of the pandemic, a smaller number of graduates arriving in the capital due to the rise of remote working, and reduced immigration.
A more positive prediction is that one in every eight cars that will be newly registered in 2021 could be electric or hybrid. This will be driven by government investments, such as the Rapid Charge infrastructure plans, which include a vision to have at least six charge points at every motorway service area in England by 2023, combined with an uptick in car sales as a result of the pent up demand that has accumulated over the year as consumers have delayed purchases. In a recent PwC survey 29% of respondents indicated that they would consider buying an electric or hybrid car in the next three years.
Global predictions - from the Great Lockdown to the Great Rebound
The global economy is projected to grow at record speed in 2021, expanding by around 5% in market exchange rates, which is the fastest rate recorded in the 21st century. This growth is contingent on a successful and speedy deployment of vaccines and continued accommodative fiscal, monetary and financial conditions in the larger economies of the world.
Barret Kupelian, senior economist at PwC, said:
“While it’s good news that the global economy in aggregate is likely to be back to its pre-crisis levels of output by the end of 2021 or early 2022, a distinguishing feature of the Great Rebound is that it will be uneven across different countries, sectors and income levels. For example, the Chinese economy is already bigger than its pre-pandemic size, but other advanced economies ‒‒ particularly heavily service based economies like the UK, France and Spain or those focused on exporting capital goods, such as Germany and Japan ‒‒ are unlikely to recover to their pre-crisis levels by the end of 2021.”
In economies such as the UK, France, Spain and Germany, growing but lower levels of output are projected to push up unemployment rates, with most of the jobs affected likely to be those at the bottom end of the earnings distribution, thus exacerbating income inequalities. The Organisation for Economic Co-operation and Development (OECD) predicts an unemployment rate of around 7% in its member states compared to pre-pandemic levels of around 5%.
Barret Kupelian, senior economist at PwC, added:
“Once the virus is under control, policymakers’ attention will focus on laying the foundations for sustainable and inclusive growth with particular focus on creating jobs and pushing the green economy agenda. Business leaders will therefore have to think about how they can reposition their organisations so that they are better placed to exploit these exciting opportunities. Some of this will also inevitably involve upskilling their existing workforce.”
The environment will be an important focus for 2021. Green bonds, which are used to directly finance environmental projects, currently make up less than 5% of the global fixed income market. But in 2021 we expect that total green bond issuance will increase by over 40% to top half a trillion US dollars for the first time. In addition, investor appetite for Environmental, Social and Governance (ESG) funds will continue to increase and could account for up to 57% of total European mutual funds by 2025. We could also see the European Central Bank be more active in the green economy space.
Finally, we expect that globally, electricity production from renewables will continue to gather momentum, with solar Photovoltaic (PV) capacity likely to grow at rapid rates on the back of growing capacity in the EU, India and China. Indeed, if current trends continue, solar PV capacity is on course to surpass natural gas in 2023 and coal in 2024 in the global electricity sector. In the UK, by the end of 2021, more than half of all electricity generated in the UK could be from renewable sources.
ENDS
Notes to editors
For more on our UK predictions, read our full UK Economic Update.
For more on our global predictions, read our Global Economy Watch.
To request an interview with our economists please contact ellie.raven@pwc.com
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