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17 Dec 2020

Tighten your shoelaces, the recovery is going into overdrive

By Citi's Wealth Management team We envisage strong but patchy growth in 2021, morphing to synchronous growth in 2022

Key Takeaways:

  • After an expected 3.9% contraction in 2020, global GDP is expected to grow by 5.0% in 2021. Inflation is anticipated to remain subdued at 2.0% for 2020, rising to 2.2% in 2021.
  • By region, Developed Markets GDP growth is expected to rebound to 4.1% in 2021 (from -5.3% forecasted in 2020), while Emerging Markets GDP could grow by a higher 6.2% in 2021 (from -2.0% forecasted in 2020).



We think the turning point in the pandemic could have been the first announcement of a highly successful vaccine trial result.

Between the three major pharmaceutical companies, about $5 billion approved doses of COVID-19 vaccines could be available to the world by the end of 2021.

With 9 other vaccines in late stage testing, it is more likely than not broad vaccination of populations could occur in 2021. We see a potential end to the pandemic in the middle of 2021, and this could return the world to a new normal and the full start of a new economic cycle.

Vaccination is expected to generate a direct positive impact to economies as population mobility normalises. The positive impact could be bigger in economies where mobility has been persistently weak.

The rollout of the vaccine could be prioritised to developed markets, as these regions have secured 85 per cent of total pre-orders. The positive impact on developed markets Gross Domestic Product (GDP) could come earlier on the back of faster vaccine deployment, with a potential larger impact in Europe, including the UK, France and Spain.

East Asia, including China,. has already significantly recovered mobility, potentially leading to a less pronounced impact from vaccination in the emerging market region.

In the near term, northern hemisphere winter difficulties still lie ahead, and socially close industries like tourism could remain depressed as we move into the new year, Certain economic activities that typically lag growth, like new commercial construction of office buildings and hotels, could continue to fall behind.

However, when the seasons starts to warm, we expect a broadening of economic activity that could brighten throughout the remainder of 2021, leaving the world economy in synchronous recovery through 2022.

Unprecedented policy easing steps taken by governments and central banks have helped bridge the economic shock induced by the deliberate, widespread suspension of daily activities in response to the pandemic. Ultra-easy monetary policy and pent-up demand could help to support recovery going forward.

Within this recovery construct, global GDP could recover 5 per cent in 2021, but while the rebound will seem fast, it will also likely be uneven. In addition to the normal growth in the working age population, a safe working environment and safe schools could allow for an unusually strong pace of recovery in the world economy.

In the event that demand remains strong, it could lead to a more rapid improvement in employment markets, creating a beneficial economic cycle.

After such a tumultuous year it's good to be able to provide a positive outlook, but we would be remiss not to point out the risks.


Wealth Solutions  >

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