2020 in a nutshell by Mike Haworth

In this video series Mike Haworth provides an overview of the macroeconomic trends for 2020 and a look into what are the driving factors for change in 2021.

2020 started on a positive note with economists forecasting an acceleration in world GDP growth. The US and China signed the Phase One trade deal which stopped the escalation of trade tariffs. Also in January 2020, the first news of the coronavirus emerged from China in late January when Chinese authorities locked down Wuhan.

Globalisation was a macro trend with ever greater mobility around the world. Although the escalation of trade tariffs between the US and China slowed global trade, the service sector continued to globalize. Growing numbers of people were travelling around the globe for business and leisure. It was this expansive global mobility which facilitated the spread of the coronavirus from China to Europe, with Italy being particularly severely affected. By mid-March 2020, the World Health Organisation had declared the spread of the coronavirus named Covid-19, a global pandemic. Around the world economies were locked down as authorities attempted to slow the accelerating Covid-19 infection rate. Health authorities around the world raced to put in healthcare capacity to cope with the surging influx of hospital patients. In Q2:2020, the global economy shrank by 9.8% quarter on quarter due to the social distancing and restrictions on mobility. This sudden contraction and the inability of people to go to work resulted in huge numbers of workers being furloughed and many others losing their jobs. Governments around the world reacted quickly to provide income support for those unable to work due to the quarantine measures. At the same time, fiscal revenues contracted sharply resulting in unprecedented expansion of budget deficits in advanced economies, a trend reflected in developing economies.

Q2:2020 saw the sharpest, deepest fall in economic output across the world since the 1930s. The tourism and travel industry virtually stopped, seriously impacting the entire value chain in the travel industry comprising airlines and cruiselines to hotels and airports to car hire and taxis to travel agents and caterers There was also a major change in the way we all worked in Q2:2020 to Q4:2020 due to the travel and social distancing restrictions. Many businesses closed, while others managed to work remotely using their high-speed broadband networks and the internet. New forms of communication became mainstream and many businesses managed to adapt to the point where they are now reconsidering their workplace requirements. This is forcing commercial property companies to adjust their portfolios to rely less on office and shopping space and putting rentals under pressure.

The narrowing of company earnings growth in 2020 resulted in investors concentrating increasingly on the “tech” stocks. Platform companies like Amazon were perfectly positioned for the quarantine restrictions. The communications companies thrived as did homewares and hardware suppliers as more people spent longer periods at home and decided to use the time to improve their living conditions. The social distancing and travel restrictions accelerated many trends especially in digital technology and communication.

Monetary policy around the world was highly accommodative before the Covi-19 pandemic and the pandemic forced central banks to become even more accommodative by expanding their already large asset purchase programmes, implemented targeted lending programmes and increased liquidity in the repo markets. Policy lending rates are at or close to zero in most developed economies while a few European central banks have negative deposit rates. This resulted in $17 trillion of investment grade debt with yields below zero at the start of December 2020. Given the prolonged high infection rates in the developed economies and the negative effect the quarantine measures are having on economic output, the central banks are expected to maintain and even increase their exceptionally high level of monetary accommodation in 2021.

Geopolitical uncertainties intensified in H2:2020. Although the run up to the US Presidential election was unusual, it resulted in Biden eventually being declared the winner. He will be sworn in as the 46th President of the United States in late January 2021. The Biden administration is expected to reverse many of the isolationist policies that the Trump administration put in place enabling the US to rejoin many important multilateral organisations and reverse the US induced deglobalization trend. The US-China relationship deteriorated through 2020 and China continued to push its Belt and Road infrastructural programme and exert increasing power over east Asia.

The other main geopolitical uncertainty was around the Brexit process which has not yielded a result as the UK and Europe head toward the deadline on 31 December 2020. The process has been complicated by a second wave of the coronavirus pandemic in the UK and Europe. Many political analysts expect at least a “skinny “deal between the UK and Europe by 31 December followed by years to negotiations on outstanding issues.

The coronavirus pandemic has dominated world headline throughout 2020. This year ended with a serious acceleration in Covid-19 infection rate in the US, UK and Europe resulting in more stringent lockdown measures to contain the accelerating infection rate. The new lockdown measures will negatively impact their respective economies which will bring down global growth forecast for H1:2021, at least. Governments are stepping up to provide more income support for their economies during the latest lockdown measures.

Various Covid-19 vaccines have been approved and are starting to be delivered in developed economies. The production and distribution of the vaccines will result in an extended period of “roll out” probably taking most of 2021. 2020 has created an exceptionally low base from which to assess global growth in 2021. The duration of the second and third waves of the Covid-19 pandemic and speed of vaccine rollout will determine the rate of recovery in global economic output in 2021.