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2021: A year of global economic recovery?

While the global health crisis continues in the early months of 2021 with second and even third waves of the virus in many regions, accelerating vaccine rollouts and major stimulus packages in many advanced economies have provided a beacon of hope. The IMF projects the global economy will grow by 6% in 2021, more than compensating for the 3.5% drop in 2020. 

Annual rate of change in world GDP, 1990-2021

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Thanks to a successful vaccine program and the American Rescue Plan (“the Biden stimulus”), GDP in the United States will rise above pre-Covid‑19 projections.

The European Union, on the other hand, was hit by a severe second wave in the winter of 2020/21, leading to renewed economic closures and lockdowns, with recovery further impeded by a slow start to vaccination campaigns. The impact of national stimulus packages may not be felt until the second half of the year. Economic output in 2021 is expected to remain 2.3% below 2019 levels. On a positive note, the bloc’s industrial production is back to pre-Covid levels, owing to a recovery in international trade. China curtailed the virus early on and was one of the few economies to expand in 2020. Dynamic growth is expected to continue through 2021, driven by exports, but especially by domestic demand, including policy-sponsored infrastructure projects. Korea and Japan avoided repeated waves of the pandemic through testing and tracing, and likewise are benefiting from reviving world trade. 

Change in GDP in selected regions, 2019 to 2021

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India’s combination of some of the world’s strictest lockdown measures and limited stimulus spending led to one of the sharpest declines of any major economy, with GDP dropping by 7.2% in 2020. The outlook significantly improved at the end of the year, driven by recovering industrial production. Early estimates place India’s annual GDP growth at 12% in 2021, though with significant uncertainties linked to the evolution of infections and the rollout of vaccines.

In many emerging markets and developing economies, economic recovery has been constrained by limited access to vaccine doses, capital flight and concerns over debt levels and rising interest rates. Adding to these pressures, Latin America has been hit by a second wave of the pandemic. Meanwhile, higher oil prices have increased revenues for oil exporters. 

Energy demand

Global energy demand in 2020 fell by 4%, the largest decline since World War II and the largest ever absolute decline. The latest statistical data for energy demand in the first quarter of 2021 highlights the continued impacts of the pandemic on global energy use. Building on Q1 data, projections for 2021 indicate that as Covid restrictions are lifted and economies recover, energy demand is expected to rebound by 4.6%, pushing global energy use in 2021 0.5% above pre-Covid‑19 levels. The outlook for 2021 is, however, subject to major uncertainty. It depends on vaccine rollouts, the extent to which the Covid‑19-induced lockdowns scarred economies, and the size and effectiveness of stimulus packages. Current economic outlooks assume global GDP will surpass 2019 levels, lifting demand for goods, services and energy. However, transport activity and, particularly, international travel remain severely supressed. If transport demand returns to pre-Covid levels across 2021, global energy demand will rise even higher, to almost 2% above 2019 levels, an increase broadly in line with the rebound in global economic activity.

Evolution of global GDP, total primary energy demand and energy related CO2 emissions, relative to 2019

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The drop in demand in 2020 did not affect all fuels evenly. Oil was by far the hardest hit, with restrictions on mobility causing demand for transport fuels to fall by 14% from 2019 levels. At the peak of restrictions in April, global oil demand was more than 20% below pre-crisis levels. Overall, oil demand was down by almost 9% across the year.

In 2021, oil demand is expected to rebound by 6%, faster than all other fuels. The last time oil demand increased this rapidly was in 1976. Despite the strong rebound, oil demand remains 3% (3.1 mb/d) below 2019 levels. Road transport activity has remained subdued through much of the year, expected to recover to pre-Covid‑19 levels only in the last months of 2021, while air transport demand is on track to remain markedly below 2019 levels for all of 2021. Only in Asia and, notably, in China does oil demand climb well above pre-Covid‑19 levels.

In 2020, coal demand dropped by 220 million tonnes of coal equivalent (Mtce), or 4%.  The largest declines in coal use for electricity generation were in advanced economies, down 15%, which accounts for more than half of coal’s global decline. Coal was particularly squeezed in the power mix by lower electricity demand, increasing output from renewables, and low gas prices. In 2021, coal demand has rebounded strongly, reversing all of the declines in 2020, though with major geographic variations. The decline in 2020 was concentrated in the United States and Europe, and demand in advanced economies is expected to recover only one-quarter of its 2020 drop, curtailed by renewables deployment, lower gas prices and phase-out policies. Meanwhile, China is projected to account for 55% of the 2021 increase.

Change of primary energy demand by region and by fuel in 2021 relative to 2019

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Lower prices enabled gas to be more resilient than coal in 2020, with demand falling only by 2%. The combination of continued lower prices and rapid growth in economies across Asia and the Middle East should drive growth of 3% in gas demand in 2021. As a result, global natural gas demand in 2021 is projected to rise 1.3% above 2019 levels, the strongest anticipated rebound amongst fossil fuels.

Renewables have proven largely immune to the pandemic as new capacity has come online and as they have benefited from priority market access in many markets. Overall, renewables usage grew by 3% in 2020, largely due to an increase in electricity generation from solar PV and wind of 330 TWh. Generation from solar PV and wind is set to grow by 17% in 2021, up from 16% in 2020. Hydro and biomass generation should also accelerate, with total generation from renewables growing by 8.3% in 2021, which is faster than 2020’s 7% increase. Two years of rapid growth means the share of renewables in total electricity generation will reach almost 30%, up from less than 27% in 2019.

The world’s biggest economies have been impacted by Covid‑19 to different degrees. Energy demand across advanced economies fell by over 6% on average in 2020, with every advanced economy at some point experiencing a contraction of economic output.

Looking to 2021, advanced economies are expected to see rapid recoveries in economic output and energy demand across most sectors. However, recoveries will not begin in earnest until the second half of the year because of continued impacts of the pandemic, especially in the European Union.

In the United States, despite the recently announced USD 2.3 trillion stimulus-spending programme, energy demand is projected to increase only 4% in 2021, with demand remaining 3% below 2019 levels. 

Rate of change of energy demand in 2020 and 2021 energy demand relative to 2019 levels, by region

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Most emerging market and developing economies also experienced a drop in energy demand in 2020, albeit less than in advanced economies. Demand declined 5% in India, around 3% in Southeast Asia, 2% in the Middle East and 1.5% across Africa.

China was a notable exception, the only major economy to experience both an increase in economic output and in energy demand in 2020. While restrictions to control the outbreak of Covid‑19 depressed demand in the first quarter, the economy began to recover from April. For the remainder of the year, energy demand grew by 6% on average from pre-Covid‑19 levels. Despite the impressive growth of renewables, increasing electricity demand led to an all-time high coal burn in December 2020.

Economic activity in China is set to further accelerate in 2021, and energy demand is expected to grow by 6%, with demand in 2021 almost 8% higher than in 2019, thus cementing China’s position as the economy least impacted by Covid‑19.

India’s steep economic slide in 2020 pushed oil demand down by more than 8%, while coal demand for power generation and industry fell by 5% and 11%, respectively. India’s CO2 emissions were more than 40% lower in April 2020 than they were a year earlier, making it the steepest monthly decline in emissions seen in any part of the world last year. But with India’s economy expected to bounce back strongly in 2021, energy demand is set to rebound by 7%, pushing demand 2% above 2019 levels. Coal demand is expected to increase by almost 9%, contributing the most to rebounding demand, as electricity demand recovers.