June 28, 2021/Cordros Report
The global economy appears to be decoupling itself from the havoc caused by the pandemic as the administration of vaccines has paved the way for economies to be reopened. Although policymakers have made concerted efforts to vaccinate their population, the overall level of progress remains sub-optimal and uneven among countries. Notwithstanding, the strong efficacy of Covid-19 vaccines has birthed hopes of Reflation trade (a prospect that assets that benefit from a recovering economy will outperform safer ones) and Commodity super-cycle (commodities trading above their long-term price trend due to pent up demand emanating from an end to lockdowns).
As the global economy gravitates towards growth, new strains of the virus in some regions and the possibility of early withdrawal of policy support have undermined optimism about the vaccine-induced post-pandemic recovery. As a result, the road to a synchronised global growth remains long. Our baseline expectation is that the general administration of vaccines will preserve the reopening of economies. We are also inclined with the view that major global central bankers expressed that the surge in inflation is transitory. Hence, tightening of monetary policy is unlikely to happen anytime soon. Against this backdrop, the global economy is projected to expand by 6.0% in 2021, a remarkable improvement from the negative growth of 3.3% in 2020.
On crude oil, we remain optimistic that global demand will maintain its rebound, albeit below pre-pandemic levels, supported by increased vaccinations, improvements in economic growth, increased mobility in the summer, improved manufacturing activity and continued fiscal support. On supply, we expect a steady increase in production, as OPEC and its allies confirmed in their monthly meeting in June, to gradually increase outputs to keep pace with the rising demand and prices. Also, we note that the increased WTI prices may entice US shale producers to increase production. On a balance of factors, we think Brent crude oil price will likely sustain its rebound for the rest of the year. Thus, we forecast that Brent crude price will average between USD68.00 and 73.00/bbl in 2021.
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