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As we are beginning to see a possible finish line on the COVID-19 front, there is an expectation in the market that vaccine-assisted re-openings globally will bring about a return to pre-pandemic economic productivity levels. The “Great Lockdown” of 2020 caused many countries around the world to enter a deep recession, which, like former hard resets, has impacted societal behaviors (i.e., social distancing) and reframed business operations and outlooks (i.e., increased safety measures and focus on supply chain). It is fair to say that some industries and segments of the market may have been permanently changed by the pandemic, be it in a positive or negative manner. While we welcome the return to normalcy — or even the new normal — it is important for investors to be mindful of a few things with respect to this economic reversal: 1) the market has largely priced in this turnaround story, 2) continued accommodative monetary policy and large fiscal stimulus packages are providing the support to restart the economic engine, and 3) any hiccups in national inoculation plans and vaccine distribution could sidetrack progress.
Hence, our glass is half full when it comes to sustaining global growth expectations in 2021. As shown in today’s chart, the IMF’s estimate of the global GDP growth rate is expected to come in at -4.4% for 2020. This is a less severe contraction than estimated in June 2020, which showed a more dire COVID-19 impact on economic activity. For 2021, the global GDP growth rate is projected to lampoon to +5.2%, due to a wide negative output gap and a gradually immunized workforce. Of note, China is the only country expected to post a positive GDP growth rate for 2020 and 2021, as it continues to show leadership in restoring and maintaining economic activity. As 2021 plays out, the actual growth numbers across the globe versus what has been projected will be followed and reported upon closely and will undoubtedly have an impact on financial markets. Among vaccine roll-out, efficacy, a new administration in Washington, and a host of other geopolitical factors, global GDP bears watching, especially the first half of the year.
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