Wed. Jan 20th, 2021

Vaccine. One word, only three syllables. All economic hopes distilled and summed up in one shot. If a large part of the population can be immunized against covid-19, great gaps open after a black year. The global recession of 2020 would be overcome.

But we live in a time where weeks seem like months and sudden script changes happen at breakneck speed. That is why the reports with the economic forecasts for 2021 from international organizations, banks and fund managers are full of conditions.

And they run the risk of becoming old as soon as they leave the press. Most, for example, do not reflect the impact of the new strain of the virus detected in the United Kingdom.

In any case, and with all the fine print and caveats that may be included, the experts’ starting point is moderate optimism. The economic crisis generated by the coronavirusit has little to do with previous recessions.

It responds to an exogenous factor caused by confinements and social distancing measures decreed to stop contagion and not to imbalances in the financial system. This characteristic differentiates the current situation from any other crisis suffered after the great wars of the 20th century.

In addition, it hit the very heart of modern economies, that is, the service sector, with great consequences particularly for employment, which was much more affected than production in general. Therefore, as vaccination clears up the sanitary unknowns, the machinery should be reactivated.

The IMF, in its latest autumn forecast, estimates a 5.2% growth for world GDP in 2021 compared to a 4.4% drop in 2020.

“Given the positive news about the efficacy of vaccines, we can already see the light at the end of the tunnel. Getting to exit could take a matter of months, depending on how quickly treatments can be produced and distributed, ”says Karen Ward, JP Morgan AM Chief Strategist.

The US manager believes that the lack of growth will continue to be the trend in the first quarter of the year and, possibly, in the second. “Starting in the summer, there could be a significant upturn in activity, after vaccines have been provided, pent-up demand is released and life begins to return to normal,” Ward adds in a note to clients.

But that idyllic roadmap faces multiple risks along the way. Therefore, economists take every opportunity to cover their backs in their projections. “If the pandemic is not controlled, economies could take years to recover,” they recall from Allianz Global Investors.

“The forecasts are now such that the margin of disappointment has increased substantially. The possibility of lasting stagnation has not disappeared. 2021 can bring us a reality check ”, says Didier Saint-George, from Carmignac’s strategic committee.

For those who prefer to see the glass half full, vaccination is not the only element on which the long-awaited economic recovery pivots. In the coming months, the two large networks that have softened the impact of covid-19 will continue to be deployed: central banks and governments.

In the first case, both the Federal Reserve and the European Central BankThey have confirmed that they will keep interest rates at ultra-low levels and that they will continue to buy assets in the market.

“The monetary policy carried out so far will be maintained in ultra-expansive terms and will support a liquidity provision that guarantees that financial resources are sufficient to meet the needs of productive activity and public debt, while minimizing the risk of insolvency” , stand out in the Institute of Economic Studies.

On the side of public aid, if just a decade ago politicians (and many economists) were reluctant to turn on the fiscal tap and rushed to call for belt-tightening, now the attitude is totally different.

With the still fresh memory of austerity , which deepened the recession after the financial crisis , since the pandemic broke out, governments not only promote fiscal spending in a generalized way to curb the effects of the crisis, but also do so in a generalized way. more coordinated with central banks.

Proof of this is that the public debt of advanced countries will increase by 20 percentage points, reaching an average of 125% of GDP by the end of 2021, according to the IMF, and no one has declared the end of the world.

Negative interest rates buy time for growth to dilute the mountain of debt that has been generated. “In Europe, for example, the political response was crucial in 2020 and will continue to play a key role in the coming year.

With the EU fiscal rules suspended for both 2020 and 2021, governments have been able to manage a budget deficit as large as their circumstances demand, ”Lombard Odier underlines in a recent report.

Precisely, the high dependence on monetary and fiscal policies lead many experts to predict that, while the entry into recession was generalized because the world was closed for several months, the recovery will not be in unison, or at least there will be different speeds.

“The divergences are due to the fact that each country has a different spending capacity when it comes to dealing with their labor markets. In other words, not all economies have the same amount of money to curb the economic consequences of the virus, ”emphasize Julius Baer analysts.

“Therefore, until the health crisis is fully resolved around the world, something difficult to imagine before 2022, it is most likely that the rich countries of the Western world, in addition to China and Japan, will recover sooner”,

It seems clear that, sooner or later, the virus will be defeated, but the scourge of inequity will not only survive, but there is a good chance that the distribution of well-being will be much more unequal than before the pandemic.

According to the experts, there are two characteristics on which there is consensus: the recovery will be from less to more as the year progresses; and the way out of the crisis will be uneven depending on the capacity that each country has to approve stimuli.

On the other hand, there are two great questions to be clarified. The first is whether a shock as intense as that caused by the coronavirus will leave a scar on the system beyond the already known effects. “The world growth forecast is subject to extreme uncertainty.

The economic consequences depend on factors whose interactions are difficult to predict, such as the evolution of the pandemic, the intensity and effectiveness of containment measures, the degree of disturbances in supply, changes in consumer behavior,

The other great unknown to be answered, closely related to the previous one, is what the post-covid economy will be like.

If only the quantitative aspect is analyzed, the IMF forecasts that, after the strong rebound expected for 2021, world growth will slow in the following years to an average rate of 3.5%, below the wealth creation forecast before outbreak of the coronavirus.

“The exit from the Covid-19 crisis should trigger a potential new economic cycle, very similar to the previous one and characterized by moderate economic growth, low interest rates and low inflation rates,” says Raphael Thuin, director of market strategies at Tikehau Capital.

If, in addition to the large numbers, one delves into those qualitative changes that the pandemic will leave in the long term, the most enumerated by the experts is that we are entering an era in which the State will have a greater role in the economy.

The neoliberal era, which began 40 years ago under the administrations of Ronald Reagan and Margaret Thatcher, may have come to an end.

The direct consequences of the great challenges of globalization, extreme liberalization and the growing power of financial markets are greater inequality, lower real income and the stagnation of the social elevator. This breeding ground, together with the needs arising from the pandemic, is what strengthens the public powers in the economy. “In this new world,

Economists warn that it would be a loner to cheat if we expected a simple return to precovid life. The multiple impacts of the pandemic for individuals, businesses and governments will not disappear overnight. “Tax activism will be the dominant trend. Government stimulus is shaping the global economy after the coronavirus, ”stresses Patrice Gautry, chief economist at UBP.

In addition to creating new problems, the health crisis has accelerated or exacerbated many pre-existing economic trends. “The longer we live in an environment in which we must be careful with our health, the more persistent the change in behavior will be,” explains Martin Romo, manager of Capital Group.

“We have pushed the fast forward button into the future and I don’t think there is going back,” he adds. In less than a year, progress has been made in what was planned to be done in five years on issues such as the digitization of the economy.

If before there was talk of the existence of a digital divide, now what there is is a digital Grand Canyon. A clear example of this acceleration has been the last Black Friday, which marks the beginning of the Christmas shopping season.

In U.S.A, the number of consumers who visited physical stores was half that of a year earlier, according to data from The Wall Street Journal. “The shift to a digital economy has been a feature of the pandemic, but it will continue after it.

Companies that did not have an online strategy to reach customers suffered immediately when the lockdowns were decreed, ”says Luke Biermann of Schroders. Along with the supremacy of the Internet, another change that will take root is the greater use of teleworking, with the derivatives that this implies for transport and the environment.

Companies that did not have an online strategy to reach customers suffered immediately when the lockdowns were decreed, ”says Luke Biermann of Schroders. Along with the supremacy of the Internet, another change that will take root is the greater use of teleworking, with the derivatives that this implies for transport and the environment.

Companies that did not have an online strategy to reach customers suffered immediately when the lockdowns were decreed, ”says Luke Biermann of Schroders. Along with the supremacy of the Internet, another change that will take root is the greater use of teleworking, with the derivatives that this implies for transport and the environment.

On the geopolitical level, China comes out of the health crisis much stronger. In the city of Wuhan, the first claws of the virus took place, however, Beijing reacted drastically (and effectively) to contain its spread. The result is a quicker exit from the economic crisis.

The Asian giant will grow this year by 1.8%, being the only one among the large economies to leave the recession behind, and by 8.2% in 2021, according to IMF forecasts. At JPMorgan AM they believe that we may be witnessing the beginning of the decade marked by the supremacy of Asia.

“The economies of North Asia (China, Korea, Taiwan) have managed to contain the pandemic more successfully than the rest of the world. As Europe and the US continue to face significant restrictions to curb the spread of the virus,

China, in full reorganization of its economic model to focus more on domestic consumption and not depend so much on exports, first suffered the trade war with the United States and then the stoppage of activity with the other partners.

However, experts believe that, as global activity recovers, Beijing will take off. “Year-on-year GDP growth could be extraordinary in the first half of 2021 and then slow somewhat during the rest of the year.

On the other hand, China continues to maneuver to win in the long term by feeding off its own high-tech industries, particularly in robotics, aviation and other areas of advanced manufacturing, ”according to Allianz Global Investors.

The Chinese government, whose economy now accounts for 16% of world GDP, according to the World Bank, it has been proposed to double its size within 15 years. A little earlier, in just a decade, it is set to become the first economy on the planet, taking the scepter from the US.

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