Economic Commentary – Jan 2021

February 3rd, 2021, by Chris Davis

There’s been some speculation

At the start of 2020 the economy was set up for a year of synchronised growth. Thoughts of any growth were put aside as the Covid-19 pandemic caused the worst recession since the Great Depression. The speed and scale of the of the monetary and fiscal stimulus has ensured that the financial markets have continued to operate, and the announcement of multiple vaccines towards the end of the year have provided hope. More recently renewed waves of infections and variants of the virus have caused concern. Nevertheless, countries who have the vaccines are operating at pace. In the US the injection rate is at 1 million plus a day accelerating to 2 million as new vaccines are made available.

The International Monetary Fund (IMF) has increased its forecast for the global economy to grow at 5.5% in 2021 and 4.2% in 2022. The 2021 forecast is 0.3% higher than its last forecast. The strength of the recovery is unlikely to be synchronised and will vary across countries. China has reportedly contained the pandemic and re-opened its economy remarkably quickly. The world’s second-largest economy is expected to grow in by 8.1% in 2020 and 5.6% 2021. In the US, which enjoyed a record 33.1% annualised GDP growth in the third quarter of 2020, the IMF anticipates the economy will expand by 5.1% in 2021 following an expected decline of 3.4% for 2020 overall.

Global trade in goods and industrial production returned to pre-pandemic levels for the first time late last year according to Netherlands Bureau for Economic Analysis. China has been the main beneficiary with a 5.6% month on month growth in exports. The US Manufacturing PMI in January was 59.1, a record high level.

The Eurozone is expected to grow stronger than Japan and Canada but slower than the US, Asia or the UK. Europe’s exporters are well placed to benefit from the recovery provided that the EU recovery fund solves its issues and governments resolve the current delays with their vaccination rollout.

Markets expect the UK to bounce back strongly from an expected -10% decline in 2020 to grow by 4.5% in the forthcoming year and 5% in 2021, the fastest growing across all the Advanced Economies. The securing of a trade deal with the European Union (EU) will support this growth….

Chris Davis
Chief Investment Officer

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