Templeton Global Macro CIO Michael Hasenstab offers the team’s 2021 outlook.

At first glance, nothing ahead in 2021 could be as bad as 2020. We have been enduring the worst economic crisis in 80 years and the worst global health crisis in 100 years—events that have profoundly damaged lives and livelihoods around the world. The International Monetary Fund (IMF) projects that when we finally close the books on 2020, the world economy will have contracted 4.4%.1 Fortunately, as we flip the calendar to 2021, we are getting closer to a point at which the economic shocks of the past year become prologue for the economic stories ahead. Global growth is projected by the IMF to expand 5.2% in 2021, as economies improve from the lows of the prior year.2 Promising vaccine trials have presented scenarios for mass distribution by the spring of 2021, with the potential to drive the COVID-19 pandemic into remission by the second half of the year. Optimism for a return to better days abounds as 2020 draws to a close. ​

Yet the current state of the pandemic paints a starkly harsher reality. Second waves of COVID-19 infections have surged exponentially in areas of Europe and the US in the waning months of 2020, compelling several regions to reinstate restrictions and lockdowns. Some of the roughest conditions of the entire pandemic are likely to be faced in the final months of 2020 and the first quarter of 2021. In the absence of a widespread remedy, economic hardship will continue to deepen with each month of restricted mobility and stifled economic activity. Time is the key​ factor for many people and businesses teetering on the brink of insolvency—each day of income destruction threatens lasting damage. Unfortunately, near-term conditions are likely to worsen before they ultimately improve.​

Investment Opportunities Are Emerging ​

From an investment standpoint, optimism for the second half of 2021 should be counterbalanced with caution over acute near-term risks, in our view. The pandemic continues to destroy areas of economic activity, resulting in substantial risks for a number of financial assets. Broad disinflationary effects are likely to persist until economies return to full mobility. We have been maintaining a cautious approach on risk assets in anticipation of second waves of COVID-19 in the fall and winter months. ​

However, several longer-term investment opportunities are beginning to emerge. We expect staggered timelines for when certain investments may become suitable given the wide variance in macro fundamentals and the divergent levels of control over the spread of the virus in specific countries. COVID-19 cases appear likely to reach a zenith during the winter months before vaccine treatments may cause the pandemic to ebb in the late spring and summer of 2021. The timing and effectiveness of vaccine treatments will be the key determinant for economic activity and financial asset valuations in the upcoming year. ​