Economic Commentary – Feb 2021

February 9th, 2021, by Chris Davis

Future’s Bright

It has been an eventful and fast-moving start to the new year. Where countries have access to Covid-19 vaccinations, they have been delivered at speed. In the UK at least a third of the adult population has been vaccinated and the NHS are delivering a remarkable 250 vaccinations a minute! The Prime Minister has laid out a timetable for an easing of lockdown restrictions, starting with children returning to school on 8 March and the opening of the economy through the Spring and Summer.

The early success of the AstraZeneca, Pfizer and Moderna vaccines pointed
towards a route to normality, however no one knew how fast. With the challenges of timely vaccination production, logistics of distribution and the take up from the general population all key to the effectiveness. All challenges have seemingly been met so far and the UK is a leader in the vaccination program. We need to have some caution, however. New, more infectious strains could become dominant and a further lockdown would be
In the United States too, vaccinations have increased, the average daily case volume is in decline and hospitalisations are being reduced. The effectiveness data from Israel of the Pfizer / BioNtech vaccine suggests
that the vaccine is 85% effective 15-28 days after one dose and the Israel Health Ministry data shows that it is 99.2% effective from preventing serious disease from Covid-19 after 14 days from dose 2.

Positive Signs

With the positive news from the vaccination programs we have also seen strength coming from the global economy. US GDP growth in quarter 4 2020 is
likely to be slightly above the 4.0% consensus estimate. US retail sales in
January have grew 5.3% and are now 7.4% higher than a year ago (pre Covid).
Sales rose across all major categories in January, reflecting stimulus spending approved in late December. US Industrial production increased 0.9% and was revised up for prior months. The gain in industrial production was led by manufacturing (excl. auto), increased 1.1% in January. This is the ninth month in the row that this production measure has increased. Estimates for GDP growth in the first quarter are at 6.0% annual rate with some including the Atlanta Fed’s GDP Now model projecting a 9.5% growth rate.

The data from China in January continued to show expansion albeit at a slower pace than the previous 6 months, however Europe is showing signs of strong manufacturing activity, with factory activity growing at its fastest rate in 3 years, particularly in Germany. In contrast the service sector continues to be weak, with February’s data showing the sixth monthly contraction of service sector activity.

Chris Davis
Chief Investment Officer

Read the full Economic Commentary…