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A Recap of GDP Growth by Country in 2021
The global economy faced numerous challenges in 2021. While COVID-19 vaccinations became more widely available in some countries, variants led to further waves in the pandemic. While consumer demand began to recover, supply chain disruptions restricted supply.
Despite these and other hurdles, the world economy expanded by 6.1% in 2021. In this Markets in a Minute from New York Life Investments, we explore GDP growth by country to see which countries had the best and worst growth. It’s the first in a two-part series that explores GDP growth around the world.
What is the Base Effect?
Before diving into the data, it’s worth highlighting that 2021’s GDP growth numbers are impacted by the base effect. Whenever growth is shown over a time period, it is being compared to a “base” or starting value. If the base value is abnormally high or low, it can distort the growth figures.
In this case, the year-over-year growth is comparing growth from 2020 to 2021. Since the COVID-19 pandemic caused 2020 GDP growth to be negative in many countries, 2021 GDP growth is measured from a lower starting point. This can make percentage growth appear higher, though in many cases economies were simply recovering from the pandemic slump.
GDP Growth by Country
With this in mind, the table below shows real GDP growth by country in 2021, along with a comparison against 2020’s numbers.
Libya experienced the highest growth rate of 177.3%. The country moved toward ending its decade-long conflict, which resulted in a rebound of oil production and economic activity. Rising oil prices have also contributed to the country’s recovery, given the oil and gas sector accounts for 60% of Libya’s GDP. However, caution should be taken with this figure as there is considerable uncertainty against the backdrop of the civil war.
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Ireland experienced GDP growth of 13.5% in 2021, driven largely by record-high exports. The country is home to more than 1,500 multinationals, including some of the top tech and pharma companies, due to Ireland’s competitive tax rate. The size of some of these multinationals can result in bloated GDP figures.
In South America, Chile had one of the highest GDP growth rates of 11.7%. The economic recovery was driven by one of the fastest COVID-19 vaccine rollouts in the world, which allowed the economy to almost fully reopen. Household consumption also rose thanks to fiscal support from the government and people withdrawing money from their pensions.
Meanwhile U.S. economic growth was roughly on par with the global average at 5.7%. The reasons for growth were widespread, including an increase in consumer spending, business investment, exports, and new single family home construction.
Looking Ahead
Recovering from the pandemic shutdown, almost all countries saw positive GDP growth in 2021. Some of the strongest growth was seen in countries with fully reopened economies, in-demand exports, and strong fiscal and monetary support.
Now, the world faces a new host of issues including worsening inflation and the Russia-Ukraine war. Which countries are projected to fare the best amid these challenges?
In the second part of this series, we’ll dive into predictions for GDP growth by country in 2022 and beyond.
Visualizing the Three Different Types of Inflation
What are the different types of inflation? Which economic forces impact each type? Below, we chart each over modern history.
This infographic is available as a poster.
Visualizing Three Types of Inflation
Inflation is dominating the news as prices hit 40-year highs.
While the price of everyday goods, including food and energy, is the most widely cited type of inflation, other forms exist across the broader economic system.
In this Markets in a Minute from New York Life Investments, we chart three types of inflation and the macroeconomic factors that influence each type.
1. Monetary Inflation
Monetary inflation occurs when the U.S. money supply increases over time. This represents both physical and digital money circulating in the economy including cash, checking accounts, and money market mutual funds.
The U.S. central bank typically influences the money supply by printing money, buying bonds, or changing bank reserve requirements. The central bank controls the money supply in order to boost the economy or tame inflation and keep prices stable.
Between 2020-2021, the money supply increased roughly 25%—a historic record—in response to the COVID-19 crisis. Since then, the Federal Reserve began tapering its bond purchases as the economy showed signs of strength.
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Indicated by the M2 Money Stock.
*Data as of April 2022.
It’s worth noting that, in theory, increasing the money supply faster than the growth in real output may cause consumer price inflation, especially if the velocity of money (speed at which money exchanges hands) is high. The reason is that there is more money chasing the same number of goods, and this eventually leads to increases in prices.
2. Consumer Price Inflation
Consumer price inflation occurs when the prices of goods and services increase. It is typically measured by the Consumer Price Index (CPI), which shows the average price increase of a basket of goods, such as food, clothing, and housing.
Supply chain issues, geopolitical events, monetary supply, and consumer demand may all affect consumer price inflation.
Rising 8.6% in May year-over-year, the CPI hit its highest level in four decades. Russia’s invasion of Ukraine and COVID-19 have caused extensive disruption in supply chains, from oil to wheat, leading to increased price pressures worldwide.
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- Data for 2022 shows the year-over-year change from May 2021 to May 2022.
When consumer price inflation gets too heated, the central bank may increase interest rates to curtail spending and allow prices to cool down.
3. Asset-Price Inflation
Finally, asset-price inflation represents the price increase of stocks, bonds, real estate, and other financial assets over time. While there are a number of ways to show asset-price inflation, we will use household net worth as a percentage of GDP.
Often, a low interest rate climate creates a favorable environment for asset prices. This can be seen over the last decade as low borrowing costs were met with rising asset prices and strong investor confidence. In 2021, household net worth as a percentage of GDP stood at 620%.
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Interest rates indicated by the Effective Federal Funds Rate
Sometimes rising asset prices can be a misleading sign of a strengthening economy since no real output is produced. Instead, this may indicate an asset bubble.
How the Types of Inflation Impact You
With monetary inflation, businesses and consumers have more money at their disposal, which could then boost demand and further increase inflation in the overall economy.
However, the degree that this impacts consumer price inflation can be unclear. Over the last decade, the money supply ballooned but consumer price inflation stayed relatively stable. Instead, supply shocks seen with COVID-19 and the invasion of Ukraine have had a more immediate effect. The effect of this scarcity in goods has made prices more sensitive to demand. This can be seen with gasoline prices at record highs.
When it comes to asset price inflation, a significant increase to the monetary supply and low interest rates are likely factors behind rising asset prices, among other variables. Yet as the Federal Reserve takes a more hawkish stance on monetary policy, the future of asset price inflation remains to be seen.
Mapped: Economic Predictions for 2022 and Beyond
Global GDP growth is forecast to drop from 6.1% in 2021 to 3.6% in 2022. This map shows economic predictions for 2022 and beyond by country.
This infographic is available as a poster.
Economic Predictions for 2022 and Beyond
How resilient will countries be in 2022? Economies have to contend with commodity shortages related to the Russia-Ukraine war, supply chain issues due to lockdowns in China, and tightening monetary policy as inflation rises.
In light of these challenges, the International Monetary Fund (IMF) has lowered its economic predictions for 2022 and beyond. The IMF predicts that global GDP growth will slow from 6.1% in 2021 to 3.6% in 2022 and 2023.
In this Markets in a Minute from New York Life Investments, we explore GDP projections by country. It’s the second in a two-part series that explores GDP growth around the world.
GDP Forecasts by Country
Due to the war in Ukraine, the IMF notes that the economic predictions for 2022 and beyond have considerable uncertainty. The projections also assume that the conflict remains confined to Ukraine and that the pandemic’s health and economic consequences lessen during 2022.
Here are the IMF’s predictions for real GDP growth by country. Unsurprisingly, Ukraine will have the most severe contraction of -35% this year. Russia’s invasion has damaged or destroyed 30% of the nation’s infrastructure, and more than 14 million people have fled their homes.
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Guyana, a country of less than 800,000 people in South America, is forecast to have the highest GDP growth of 47.2% in 2022 and 34.5% in 2023. The country has begun to rapidly develop its offshore oil industry, with oil earnings estimated to make up nearly 40% of its GDP.
In Asia, India is projected to see strong growth of 8.2% in 2022 and 6.9% in 2023. The growth is supported by government spending and economic reforms, such as lowering the corporate tax rate and allowing more foreign direct investment. In fact, foreign direct investment reached a record $84 billion in 2021-22.
Meanwhile, the IMF predicts that GDP growth in the U.S. will hit 3.7% in 2022 and 2.3% in 2023. The Russia-Ukraine war is expected to slow growth in America’s trading partners, reducing their demand for American goods. The central bank has also withdrawn U.S. monetary support faster than expected as rates rise to combat inflation. Even still, the IMF expects that the U.S. will reach its pre-pandemic trend output path by 2022.
Supporting Growth
Certainly, there are a number of risks facing the global economy. Countries with strong fiscal and monetary support, as well as countries with in-demand exports, have some of the best economic predictions for 2022 and beyond.
The IMF also offers countries various recommendations in order to support growth. For instance, central banks can offer clear interest rate guidance to minimize surprises that disrupt the markets. Governments can continue offering targeted fiscal support to vulnerable populations, such as refugees and households most impacted by the pandemic.
Over the longer-term, countries can focus on reskilling their workforce for the digital transformation, investing in renewables for the green transition, and improving the resiliency of global supply chains.
