Deloitte COVID-19 Economics Monitor

The Monitor analyses the health and economic impact of the pandemic across the world. Updated weekly, it provides a succinct, easy-to-navigate guide to the latest global developments. For suggestions and questions please contact my colleague Maximilien Lambertson.

Ian Stewart, Chief Economist, Deloitte

Last updated: 11 May        Next update: 18 May


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UK GDP forecast | US & Germany GDP forecasts | Global economy | UK economy
Business sentiment | Public health | Policy response | Financial markets

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Deloitte's GDP growth forecast for the UK

In our latest forecast for UK GDP, we expect a smaller contraction in the first quarter of 2021 than previously projected, in light of positive monthly GDP growth in February and strong survey data in March.

We continue to expect the economy to rebound strongly as restrictions are eased gradually over the second and third quarters, supported by the vaccine rollout, extended UK fiscal support and the boost to global growth from the large US fiscal stimulus.

We have incorporated a slowdown in the recovery in the final quarter of 2021 and the first quarter of 2022 as we expect an additional wave of the virus to prompt some restrictions (albeit not as disruptive as the previous lockdowns).

Our forecast for UK GDP growth

Deloitte’s GDP growth forecasts for Germany, the UK and the US

Global economy

Global confidence and activity grows in April

Purchasing Managers’ Indices (PMIs) in April registered an acceleration in activity in the euro area, UK and US. In the US both services and manufacturing PMIs registered record-high readings.

Consumer confidence also improved in the euro area, UK and US in April, rising to the highest levels recorded since the start of the pandemic.

In the first quarter GDP rose in China and the US, but contracted in the euro area due to tighter lockdown restrictions. The UK is also expected to have registered a contraction in the first quarter.

Unemployment rates have declined from their pandemic highs in recent months, and remain lower than the peaks registered after the 2008 global financial crisis. Government furlough schemes limited job losses in many countries. The US did not feature such a scheme, but hiring has picked up quickly.

UK economy

Economy poised for lockdown easing

Consumer confidence rose to a pandemic high in April, while retail sales rose sharply by 5.4% month on month in March, as lockdown restrictions were eased.

Vacancies are rising, but in February remained below pre-pandemic levels. The arts, accommodation and food services sectors registered the sharpest drop, while the public and construction sectors have higher vacancies than a year earlier.

Equities of smaller, domestically oriented firms have outperformed larger, international UK companies during the pandemic, with the divergence widening following the agreement of the EU-UK trade deal and the start of vaccinations.

UK GDP grew by 0.4% month on month in February, the first time activity rose during lockdown, driven by a pickup in manufacturing, construction and wholesale and retail trade.

Business sentiment and strategies

Profits rise alongside higher costs and supply shortages

Corporate profits have recovered part of their pandemic losses, with East Asia and the US the closest to pre-pandemic levels.

Business investment in intangible assets - software, research, computer equipment - has soared during the pandemic and in the US now exceeds the value of tangible assets - structures and industrial equipment.

Companies have reported a surge in costs and order backlogs due to supply chain disruption from the pandemic, extreme weather and a sharper than expected recovery in demand.

UK industrial firms report levels of material and unskilled labour shortages last registered in the mid-1970s, owing to Brexit and COVID-19 disruption.

Public health and the lockdown

Cases and deaths surge in India

New daily COVID-19 cases worldwide have risen since mid-February, driven by a surge in India.

India is registering a record surge in cases, hospitalisations and deaths, driven by looser restrictions and a new “double mutant” variant.

A wave of cases in continental Europe driven by the B.1.1.7 (UK variant) in March appears to have slowed in April.

The UK has continued easing restrictions as case rates and hospitalisations have fallen to low levels. Since late April European countries have started to loosen restrictions again. The US has materially eased restrictions since February.

Vaccinations have continued apace in the UK and US, and have recently accelerated in the EU. Questions remain over access to the vaccine in emerging economies and whether existing vaccines will be effective against mutant variants of COVID-19.

Policy response

Loose fiscal and monetary policy raise inflation concerns

Central banks in advanced economies are expected to maintain or even expand their loose policy stances – involving ultra-low rates and bond purchases – over the medium term. Central banks in emerging economies have started hiking rates in response to depreciatory exchange rate pressure and rising inflation.

Yields on government bonds have risen from their pandemic troughs, but in advanced economies they remain lower than their pre-pandemic levels. In some emerging markets, yields have risen more sharply.

Large fiscal stimulus, particularly in the US, loose monetary policy, supply chain bottlenecks and the rapid recovery in consumer demand have raised concerns over inflation risk.

Inflation expectations have risen in 2021, eclipsing the 2% target in the US, but remain near historic lows. Central banks expect inflation to rise temporarily due to base effects as commodity prices and consumer demand recover before subsiding in the medium term as supply chains frictions ease and catchup demand dissipates.

Financial markets

Economic recovery boosts commodities and financials

In 2021 equities of basic materials, financial and industrial companies have outperformed, as is typical in an economic upswing. Consumer goods, healthcare and technology equities which soared in 2020, have underperformed, but still risen from the start of 2021.

Commodity prices have rallied in 2021 driven by the global economic recovery, particularly strong demand for manufactured goods.

US equities have maintained their outperformance of their global peers during the pandemic, reflecting high profitability, loose monetary policy and the heavy weighting of the technology sector.

Global food prices hit a ten-year high in March owing to adverse weather, supply disruptions and government stockpiling.

Key data sources and interesting articles

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