Going into 2021, we expect the haze of uncertainty wrought by COVID-19 and U.S. politics to lift. For the global economy, this could translate into meaningful growth catalysts.
26.01.2021 | 07:20 Uhr
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GLOBALLY: We believe the most promising of those catalysts is likely to be the introduction of effective and widely available COVID-19 vaccines around the world. Clearly, the eradication of COVID-19 would be a major factor in facilitating a quicker pace of economic normalisation in 2021.
UNITED STATES: Joe Biden is set to become the 46th U.S. president in January, with critical ramifications worldwide. In the near term, we expect the Biden team to provide a credible approach to managing COVID-19, coupled with an increase in fiscal stimulus to soften the ongoing economic impact of the virus. Longer term, we expect to see significant infrastructure spending, tied to innovative green technology, thus aligning the U.S. with the global “Schumpeterian” shake-up of the energy industry.
The Biden administration should ultimately be a boon to both domestic and international policy, in which greater certainty, consistency and co-operation with respect to U.S. global trade policy would be a game changer. This is not to imply that we expect Biden to turn “soft” on China, but more that the “rules of the road” will be clearer, with fewer unpredictable changes in direction, and greater alignment with traditional allies.
CHINA: The New Year will mark the start of China’s new five-year plan, which has a clear “growth” agenda — a reversal of the “deleveraging” goal of the previous five-year plan. While China’s focus is their domestic economy, their plan will nevertheless support global economies that export raw materials and equipment needed by China, helping to fuel growth in many of the world’s cyclical sectors.
As the world gratefully moves into 2021, we see plenty of reasons to be optimistic.
A more synchronised economic recovery
The global economy is likely to see both developed market (DM) and emerging market (EM) growth accelerate in 2021. This has not occurred since 2017, which marked the beginning of a period of divergent economic outcomes due to Chinese financial deleveraging, a manufacturing recession, global trade disruption and tightening financial conditions, as the Federal Reserve raised interest rates and the U.S. dollar surged.
Critically, the world’s two largest economies are both focused on increasing domestic demand and implementing an agenda for structural medium-term investment.
Consumers will reach a crossroads in the spring of 2021
POSITIVES FOR CONSUMPTION GOING INTO 2021, ESPECIALLY COMPARED TO THE 2008-2009 RECESSION:
DISPLAY 1: Unemployment has been maintained well below 2009 highs
Source: Haver, 20 November 2020.
DISPLAY 2: A 2020 surge in U.S. small-business formations bodes well for the 2021 employment outlook
Source: Bloomberg, Macrobond, US Census Bureau. Data as of 3 December 2020.
NEGATIVES FOR CONSUMPTION GOING INTO 2021
Surging cases of the virus in western developed nations, combined with a lack of further fiscal stimulus in the U.S., may reverse the positive trends for consumers, especially as unemployment remains elevated.
A more intangible variable is consumer sentiment or, as Keynes put it, “Animal Spirits.” After the initial shock from the virus in March and April, U.S. consumer sentiment remained robust as people saw continued improvement in the economy and enjoyed massive income support from the government. The question is whether the recent surge in the virus and Donald Trump’s loss in the U.S. presidential election are weakening these spirits. The latest Michigan Consumer Survey data showed a sharp drop in expectations among Republicans and only a negligible rise in expectations among Democrats. Since the country is roughly evenly split, a deterioration in sentiment among Republicans—if it results in less robust spending—could lead to a softening in U.S. consumer spending.
Business activity and capex to pick up in 2021
As with the consumer, there are a number of reasons why we expect both manufacturing and capex activity to accelerate in 2021.
DISPLAYS 3 AND 4: Capital expenditures at strong levels across the U.S., Japan and South Korea
Source: Datastream, MSIM, Bloomberg. 3 December 2020.
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