2021 Macroeconomic Outlook – A break in the clouds

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What a year 2020 has been! From optimistic expectations of broad-based global growth to conversations around the Sino-US trade tensions and its ability to stall the anticipated positive growth outcome, to the outbreak of a global pandemic that started out as a local outbreak in Wuhan, to civil unrest across many countries as socio-economic pressures mounted, to the debates over the US’ turbulent post-election process, 2020 has indeed morphed into the unthinkable – a year filled with so much turbulence.

However, we can all agree that 2020 has been a year of reforms and remarkable developments, not just for governments around the world, but also for businesses and individuals.

2021 Macroeconomic Outlook - A break in the clouds

As we gradually draw the curtains on this remarkable year, we should remind ourselves that surviving this year is as much an achievement, as collecting trophies. We just lived through the most severe economic downturn in recent history, and that is an achievement worthy of pomp.

Looking ahead, however, we see a break in the clouds. Research breakthroughs on a medical solution to the virus, hold the promise of a growth comeback in 2021. With the base expectation of a vaccine rollout in H1’21, the hope is that normalcy can return to many countries.

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In addition, more cordial and diplomatic relations between the US and the rest of the world – especially with respect to trade – could tilt global macroeconomic risks to the upside, putting many countries back on the growth path.

But the road to recovery could be quite arduous. Things could get worse before they get better. Many countries came into the pandemic with pre-existing weaknesses.

Large fiscal and current account deficits (Brazil; South Africa), mono-sector economic structures (Columbia; Russia) and inconsistent macroeconomic policies (Turkey; Mexico) are weaknesses that can magnify vulnerabilities in the near term and weigh on recovery efforts by global policymakers. As such, global economic recovery from the pandemic-induced downturn remains fragile and patchy.

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Many countries have seen a deterioration in real sector indices (Nigeria; Venezuela), fiscal slippage (South Africa; India), and external sector volatilities amid the persistence of the virus.

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Many are also simultaneously experiencing unprecedented capital reversals, substantial currency depreciation and sharp downgrades to their sovereign debt ratings and/or outlooks – with countries like South Africa, Maldives, and Angola recording double-downgrades in the year. The most vulnerable countries have also been forced to turn to the International Monetary Fund (IMF) for emergency funding or debt relief.

In addition, the risk of a second wave of the virus is real now more than ever. While public health systems are already stretched globally, the advent of winter could see a material increase in new cases – especially in boreal regions.

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The global easing of travel and tourism restrictions also raises the risk of cross- border infections, as seen in the first wave, while the return of social interaction could accelerate local transmission. Let us not also rule out the case of a delayed rollout of and/or inequitable access to the vaccines.

As much as we are optimistic about a global economic recovery in 2021, there are still potential risk factors. There always are. But we are betting on a more predictable and somewhat less exciting (compared to 2020) 2021. Recovery in 2021 may, however, be K-shaped – uneven and split between industries and income groups.

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Technology-related sectors could record stellar growth, while structural impediments – especially in emerging markets – could constrain manufacturing recovery. The process of re-thinking supply chains could weigh on both domestic and international trade, and delayed recovery in middle-class incomes could cause growth in realty to lag.

Download the 2021 Macroeconomic Outlook – A break in the clouds Report here

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