Global Investment Outlook 2021: the year when the COVID crisis ends
Let us begin our annual outlook with a bold statement: 2021 will be the year when the COVID crisis ends. More precisely, it is now clear that the right set of tools will be available by the middle of next year to definitively control the pandemic. And one lesson of the past months is that when virus-related restrictions are lifted, the economic catch-up can be rapid – as experienced during the third quarter of 2020. The examples of China and other Asian economies are also telling.
For sure, before vaccines are fully deployed, the pandemic will remain a challenge to the outlook. Still, it should prove easier to navigate and less economically damaging than during the first half of 2020. Better knowledge of the virus and of the measures necessary to combat its spread allow for much more targeted restrictions. Also, regional divergences put global demand less at risk of a generalised collapse. Finally, policy support measures are in place and continue to be rescaled, which constitutes a significant safety-net. So, while we do expect growth to remain under some pressure in the final quarter of 2020 and first quarter of 2021, the progress made over the past few months is unlikely to be reversed.
If all goes to plan, a resolution of the pandemic through safe, effective, and widely available vaccines would enable economies to recover lost output after their shutdowns and deep 2020 downturn. The relief should be palpable to the global population, potentially inducing a late spring/early summer rush to return to activities that support those sectors most affected by lockdowns.
And, with loose financial conditions, consumer spending should be lifted by lesser precautionary savings. At the same time, a great amount of fiscal stimulus should continue to buttress the recovery. Our baseline scenario thus sees the US economy return to its pre-crisis output level sometime during the second half of 2021, while the euro area will likely have to wait until early 2022.
We see the US economy return to its pre-crisis activity during the second half of 2021 and the euro area in early 2022
Global trade should see a sharp rebound
If vaccines don’t prove decisive in containing the pandemic, downside risks will be material
Such a rebound in activity should also drive a recovery in inflation, but only to moderate levels
Firmer consumer demand and some supply shortages, with inventories having been depleted, should push up price growth. But the large output gap, labour market slack, and subdued private sector credit demand means that this normalisation process on the price front is unlikely to hinder central banks in their interventions. The recent changes to their monetary policy framework, with the adopting of Average Inflation Targeting (AIT), will also allow them to keep rates close to zero even as the unemployment rate continues to move down
An important characteristic of the coming – strong – recovery is how uneven it is likely to be, with some countries and industries moving faster than others. Activity in still-depressed sectors such as food services, travel and accommodation can be expected to return to pre-pandemic levels, helping bring the unemployment rate down further. Still, these sectors, as well as general merchandise, clothing and accessory stores sales (indeed perhaps even grocery store sales), continue to face long-term challenges.
Reference: LOMBARDODIER
Thai
Eng