With Election Day in the rearview mirror and a vaccine on the horizon, things finally seem to be looking up as we near the end of 2020. But looking ahead to next year, many questions remain about what may be in store for the global economy and the markets.
The Economist Intelligence Unit, the research and analysis division of The Economist Group, recently released its Industries in 2021 report, which looks at the key trends, risks and growth prospects for the global industry next year.
To learn more about the unit’s forecasts, we spoke to Ana Nicholls, director of industry operations at The Economist Intelligence Unit, or EIU. Here are edited excerpts from that interview.
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What does the EIU foresee for 2021 in terms of a global economic recovery?
After one of the worst years in decades, The Economist Intelligence Unit does expect things to get better. We are forecasting real global growth domestic product growth of 4.2% next year, following a 4.7% contraction this year. But as those figures suggest, next year’s bounce will not be enough to get the world back to 2019 levels, and many countries will continue to struggle.
Asian countries will recover the fastest; China is the only G-20 country not to decline at all this year. (The G-20 is made up of representatives of industrial and emerging-market nations such as Argentina, Brazil, Japan, Mexico, the U.K. and the United States, to name a few.)
Most major economies, including the U.S., will recover in 2022, but some emerging markets will need to wait until 2023-2024 to get back to 2019 levels.
Can you speak to how the above conditions will impact the financial markets?
There has been a palpable sense of relief across the world in the past week or so, as shown by some strong stock market rallies. The rally came from two sources: The news that Pfizer’s COVID-19 vaccine has shown (more than) a 90% efficacy rate in trials, and the news that president-elect Joe Biden has beaten President Donald Trump in the U.S. presidential election.
We would expect the rally to wane somewhat, but stay-at-home stocks, such as technology, online retailers and payments, will stay strong for as long as social distancing remains in place. If vaccines are rolled out successfully, we would also expect a partial recovery in some beleaguered stocks, including airlines and tourism companies. But markets will be vulnerable to risks, and we are not out of the woods yet. In particular, there are likely to be some major corporate bankruptcies over the next few months; there may also be sovereign debt defaults in some markets.
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What are the key prospects, risks and trends you expect to play out in each sector in 2021?
We highlight four trends that we expect across the six industries during 2021. The first is restructuring and bankruptcies, which will impact the automotive and consumer goods sectors in particular, and through them the banking sector. We are expecting a steady flow of bankruptcies over the next few months, even as markets start recovering.
Fortunately, banks appear to have built up adequate provisions, thanks to the regulations put in place after the 2008 financial crisis, although they have yet to be fully tested.
We also expect the widespread government support that we’ve seen over the past year to become more targeted, with many governments aiming to support a green recovery. That is beneficial to the renewables sector and electric vehicles in particular.
The third trend we foresee is a continuation of the U.S.-China trade tensions, forcing companies to think carefully about the structure of their supply chains. Biden’s win removes one source of uncertainty here, and it may lead to the removal of some tariffs in strategic areas. However, Biden is likely to be just as cautious as his predecessor about the use of Chinese technology and what that means for national security. So the technology wars will continue, and that will put a strain on geopolitical relations across Asia and even across the world, as countries may be forced to choose between the rival technologies.
The fourth trend, related to this, is that the rapid digitalization of several industries will continue. Online retailing is a big part of this, although growth in 2021 will be slower than it was in 2020. But we’re also seeing more online automotive retailing, more online health care and more online banking and payments. Because of this, the ability of telecommunication companies to ensure connectivity, and to carry on investing in 4G and 5G is crucial. But it may be hampered by the U.S.-China technology rivalry, particularly in terms of how it affects China’s Huawei, whose technology underpins a lot of 5G networks.
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Which sectors do you expect to lead the recovery and which do you think will lag?
The telecommunication and technology sectors are already leading the recovery. Some digital businesses have benefited massively from the pandemic and lockdowns. That includes many online retailers, which will carry on benefiting from the investment they have put into marketing and delivery. Essential goods, including food, will also be fairly resilient for the next year or so, after which we expect nonessential spending to come back again. There have also been a few market niches that have thrived, including everything from rubber gloves to dog food, garden equipment and homeware.
However, the sectors directly impacted by lockdowns, including real-world retailing, automotive and particularly travel and tourism, will take some time to recover. Automotive is getting a slight bounce from pent-up demand, but not yet enough to make up for the massive sales drop it suffered. The only real growth is coming from electric vehicles. Some brick-and-mortar retailers will probably never recover, particularly businesses such as department stores, which were already struggling. The travel and tourism sector has been hit like no other, although it was cushioned in some countries by domestic tourism.
We are not forecasting a recovery to 2019 levels in most countries until 2023, although we will bring that forward if the vaccine rollout goes smoothly and allows countries to open up their borders again.
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Q&A with The Economist Intelligence Unit on Industry Trends in 2021 originally appeared on usnews.com
