- GDP growth of 0.8% month-on-month in May disappointed expectations, despite the reopening of indoor hospitality that month. This left output 3.1% below its pre-pandemic peak, with weakness in services remaining the chief factor.
- Spending patterns should return to normal, which is likely to constrain the pace at which the shortfall erodes. Rising COVID-19 infections may also pose a risk. While 2021 should be a year of very strong growth, it may not be quite as heated as previously hoped.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“A 0.8% month-on-month rise in GDP in May was little more than half the consensus expectation of 1.5%, despite the boost to activity from the resumption of indoor hospitality on 17 May. Accommodation and food service activities grew by 37.1% month-on-month, but overall services output was up only 0.9% month-on-month. This was largely due to a soft performance from non-consumer-facing parts of the services sector. Industry grew 0.8% month-on-month, but construction output was down 0.8%.
“May’s performance left GDP 3.1% below its pre-COVID-19 level in February 2020. The EY ITEM Club thinks there’s a good chance this gap will disappear by the end of 2021, but the pace at which it is eliminated faces some constraints. While the removal of most remaining COVID-19 restrictions on 19 July should bolster the recovery, rising infections may present an opposing force.
“The unusual nature of the rebound also points to a slowdown in growth. Lockdowns resulted in a large degree of expenditure switching. But with the economy now largely reopened, spending patterns should return to normal. This will boost demand in some sectors, but spending in other areas which benefited from social distancing restrictions, such as household goods, is likely to fall back.
“Overall, while 2021 should be a year of very strong GDP growth, it may not be quite as heated as previously hoped.”