SUMMARY

  • Emerging From The Shadows

The start of vaccination programs in several parts of the world raised hopes of economic turnaround this year. However, enthusiasm was curbed somewhat amid renewed virus waves, emerging variants of the virus and slow inoculation progress. With tight restrictions still in place in key jurisdictions, 2021 economic activity is off to a slow start.

That said, with inoculation programs gathering more steam and policy likely to remain supportive, a strong economic rebound is expected towards the middle of the year, followed by a return to more normal growth in 2022.

We expect that the vaccine rollout will allow durable economic reopening by the middle of the year, but the appearance of a more pernicious variant of COVID-19 (one against which current vaccines are not effective) is the most major risk to the outlook.

Following are our views on how these circumstances will affect major world markets.

United States

  • Stimulus and vaccinations have set the stage for a strong year of growth. Aggressive campaigns to inoculate the public will help rebuild confidence and reopen commerce, leading to rapid growth in the middle of the year. Meanwhile, the Biden administration looks likely to pass most of the president’s $1.9 trillion proposal to support the economy, giving consumers more cash to weather the virus and spend when it is safe to do so.
  • Despite optimism for a good year ahead, the first quarter of 2021 will be the slowest. Payroll growth of only 49,000 jobs in January, following a loss of 227,000 in December, shows the recovery has broadly stalled. The January reading of the consumer price index was flat month-over-month, and consumer spending in the fourth quarter reading of gross domestic product (GDP) was below expectations. The demand-driven downturn will require a demand-driven recovery that has not yet materialized.