2021 will be a year of recovery 2021 will be a year of recovery http://www.federatedinvestors.com/static/images/fhi/fed-hermes-logo-amp.png http://www.federatedinvestors.com/daf\images\insights\article\netherlands-leiden-small.jpg December 28 2020 December 29 2020

2021 will be a year of recovery

Three things to watch in 2021.

Published December 29 2020
My Content

As we look for more normal economic conditions in the year ahead, we’ll be watching:

  • The shape of the recovery After a grueling 2020, one thing to watch for will be the momentum and breadth of the recovery: it could be a vigorous W-shaped, which would take into account two Covid-19 waves; a paltry L-shaped; or an uneven K-shaped. Whatever the shape, the recovery will be driven by policy choices made by governments around the world and the potentially scarring effects of Covid in the labor market. We expect a largely globally synchronized recovery, the same way the sharp recession in 2020 concerned all regions. China, which was hit first by the virus, should lead the way.
  • Global stimulus If Covid vaccines become widely available, as expected, the economic focus will be on both the size and composition of fiscal packages. We expect public spending to include high-multiplier and structural items, such as infrastructure and labor force-retraining, that will boost productivity and potentially have a significant and sustained impact on growth. Monetary policy should remain extremely loose, and in a bit of an evolution, increasingly coordinated with fiscal policy. We expect central banks to extend or even expand their purchasing plans and to strengthen their commitment to keeping rates low. Central banks also may tweak their mandates to adopt Fed-style average-inflation targeting frameworks and/or more explicit targeting of growth and employment.
  • Populism While we expect the recovery to be synchronized, that does not mean coordinated. History has shown that populist political movements thrive in times of economic stress and the pandemic may have exacerbated underlying trends that were the root causes of populism—most notably, income and wealth inequalities. We will be watching Germany’s federal elections in October as an indicator of whether Covid has played into populist thinking. A return to more normal geopolitical and economic conditions may depend at least to some extent on the distribution of a safe and effective vaccine.
Tags 2021 Outlook . International/Global . Markets/Economy .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

International investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards.

Hermes Investment Management Limited.