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26 I Cover story bne December 2020
outlook in the medium term (as vaccines are administered, lockdowns ease and Biden’s economic policy of engagement vs Trump’s bent toward protectionism reduces trade tensions),” BCS GM said in a note at the end of November.
But be warned: in the short-term things could get worse before they get better as the second wave gathers momentum and infection rates soar around the world ahead of the holiday season.
Vaccine bump
The mood brightened dramatically in November after several pharmaceutical companies released the preliminary results of their corona-canddiate vaccines. Pfizer, Moderna and Russia’s Sputnik V all released preliminary Phase III trial results that showed all three vaccines have at least a 90% efficacy – very high for a vaccine.
Economists immediately upgraded their 2021 economic outlooks or added a back-to-work scenario where the pandemic fades away.
“The preliminary trial results for the vac- cines of Pfizer and Moderna have shown markets a light at the end of the tunnel
of the pandemic... With the preliminary trial results showing effectiveness above 90% for two vaccines having sparked enthusiasm, the S&P 500 has hit record highs and Brent has advanced to $44/ bbl,” analysts Sberbank CIB said in a note in the middle of November. “Within stock markets, pandemic underperformers have massively outperformed the so- called stay-at-home stocks.”
It's still early days as not all investors
are convinced the nadir has been passed and Sberbank CIB was predicting more swings as fund managers see-saw between “enthusiasm” and “despair,” the bank said.
The release of trial results by the rivals has been marked by rallies, one- upmanship and Schadenfreude but the bottom line remains none of the leading drugs has shown any major problems to date, and actually all seem to work much better than could have been expected. Russia was the first register a vaccine and has already started inoculating
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health workers (and journalists). The mass global deployment of the first vaccines is due to start in December- January. Russian officials say that all of Russia’s population over the age of 60 years could be inoculated in the first two months which will rapidly
And growth will be uneven, disproportion- ately favouring EMs. The most important was the 2% growth expected in China, pushing its GDP up to $14.9 trillion or 18% of global GDP. And China, Taiwan and Egypt are the only EMs expected to grow in 2020. From the New Europe region only
“The preliminary trial results for the vaccines
of Pfizer and Moderna have shown markets
a light at the end of the tunnel of the pandemic”
reduce mortality rates there. Globally nursing homes and health workers
will be vaccinated in April and March with the general population in April and May. Analysts say that the effect of the vaccine roll out will become fully apparent in the second half of next year when the world could return to normal.
IMF forecasts
Analysts were also buoyed by the last IMF World Economic Outlook which was released in October that predicted 27 of the 78 countries it covers will return to growth in 2021, albeit at reduced rates.
“In 2021 global growth is projected at 5.4%. Overall, this would leave 2021 GDP some 6.5 percentage points lower than in the pre-COVID-19 projections from January 2020,” the fund said in
its outlook. It went on to say that the pandemic has caused the global economy to contract by 3% – much worse than in the 2008-09 financial crisis.
the frontier markets of Uzbekistan and Tajikistan are expected to put in positive growth this year, according to the World Bank. But almost the entire region is expected to be back in the black next year.
Stepping back a little and the Developed Markets (DMs) have suffered more from 2020 than the EMs. The IMF calculates that DMs will see a -5.8% contraction
in 2020 and 3.8% growth in 2021. That compares to a -3.0 contraction in EMs in 2020 and a 6.2% bounce back in 2021.
Among the EMs Asia does best with a very mild 0.7% contraction this year and
a whopping 8% bounce back next year. For Emerging Europe the numbers are -4.5% and 3.8% on aggregate respectively.
End of trade wars, resumption of FDI
Back-to-work scenarios will lift growth, but the general investment climate
has also improved that will act as
a tailwind, says Charlie Robertson, the
Overview of the World Economic Outlook Projections at Market Prices (Percent change)