ISET-PI has updated its real GDP growth forecast for the first and second quarters of 2021. Here are the highlights of this month’s release:

The real GDP growth rate amounted to -11.5% year-on-year for January 2021.

As a result of the update, the growth forecast for Q1 of 2021 remained unchanged, at -5.4%. ISET-PI’s second forecast for Q2 of 2021 puts GDP growth at a positive 11%.

Since Q2 2021 growth rate is relative to the same quarter of the previous year, the unusually high 11% growth rate is in part due to the pandemic-driven collapse of GDP observed in Q2 2020 (negative 13.2%). Thus, our forecast model “expects” the bounce-back recovery of real GDP relative to last year.

The negative 5.4% growth projected in Q1 2020 is possibly too “optimistic”, as most of the lockdown measures were extended until mid-March.

Based on January data, the annual growth in 2021, is expected to be 2.5% in the worst-case scenario, and 3.6% in the best-case or an average long-term growth scenario. Our middle-of-the-road scenario (based on the average growth in the last four quarters) predicts a 2.9% increase in real GDP.

Overall, the projected growth numbers for Q1 and Q2 2021 should be interpreted with caution, as our model does not take into account the current and potential future public health measures to contain the pandemic, significant uncertainties associated with the pace of vaccination, and the economic rebound after the lockdown.