Top 5 Economic Predictions For 2021

2021 Economic Predictions

As 2020 wanes into history as one of the most deplorable years in collective human history for obvious reasons, the global economy went through its worst recession in 74 years while coronavirus rampaged through people’s lives destroying entire industries in some cases. We know that coronavirus will stay with us even through 2021, however the development and deployment of the vaccine will not only eradicate the pandemic but pave the path for a transition to a new post-pandemic economy.

Economic recovery is not a linear concept, there are multiple types of such recoveries with varying cause and actions. Given the paradigm shift in the sector due to coronavirus, it is only natural to approach 2021 with pragmatism but hopes.

Modest Growth In Early Quarters With Eventual V-Shaped Recovery

As far as one can see, lockdowns are still in place and cases are still on the rise. This diminishes fiscal support, increases public and private debt, and strains consumer’s spending power. These very reasons have resulted in a 4.2% global GDP decline in 2020.

Alphabet soup: How will post-virus economic recovery shape up? | Reuters

However, these effects will eventually wane as economies reopen and the public is vaccinated en-masse. Economists are predicting a V-shaped economic recovery streaching for two years to reach pre-pandemic levels. Economic rebound following a recession usually tends to be really fast paced in the starting eventually waxing off to a normal level. However, global GDP is also projected to increase by 4.6% in 2021, a sizeable increment no doubt.

Increased Focus On Environmental, Social, and Corporate Governance

One of the most profound shift in industry focus will materialise in 2021, a much needed focus on Environmental, Social, and Corporate Governance. ESG is one such sector which has seen some growth through the past decade by means of passing legislations aimed at curbing pollution, promoting greener technology, among others. This is helped by governments globally adopting sustainability-linked issuance which incentivises achievement of ESG goals. Emphasis on ESG also allows for diversion of investment to startups with innovating green technologies and an overall ecosystem aimed at better environmental and socially sustainable outcomes.

Accomodative Monetary Policies To Sustain and Repo Rates Hover Near Zero

Major central banks including Reserve Bank of India will move towards a more accomodative policy to account of market growth. Federal Reserve on the other hand has stated that it’s 2% inflation objective is an average and not a ceiling, this intention is echoed across to pond to include ECB (European Central Bank) as well.

Given the trend to maintain accomodative policies, it stands to reason that repo rates across central banks will stay near zero throughout 2021 to incentivise spending and in emerging markets where inflation is more likely to take place monetary easing and repo rates are going to stay positive as they were throughout the pandemic.

Major Financial Crisis To Be Avoided For Smooth Recovery

Given how the pandemic has resulted in larger capital buffers and improved liquidity situation across global banks it is safe to assume that 2021 will witness a smooth recovery if things stay as they are. However, given the unprecedented nature of this event it is difficult to assume the challenges such a recovery might possess.

One such possiblity where the global banking system has to play a game of balance will arise from the increase in credit boom ahead of lockdown eases and eventually as the pandemic ends. Negative interest rates will continue to exist and this can result in massive public debt as mindless spending can pave the way for a 2008 style credit crisis. However, it does seem that the capital buffer built up during the pandemic can avoid a crisis as such.

India To Push For Greater Economic Dominance Through Development In Manufacturing Industry

China’s dominance in the global manufacturing marketspace cannot be ignored, India however has eyed this business and started rolling out production linked incentives to MNCs to attract foreign investment and transform India’s economic output. So far, the program seems to have yeilded results as major players like Samsung and Apple have already established manufacturing units in India incentivised by the Government’s incentives with tax breaks and land grants.

Samsung opens world's biggest smartphone factory in India

This shift in the global mindset comes after USA’s trade war with China picked up momentum over the presidency of Donald Trump and is only strengthened by complete breakdown of supply channels on account of China being the epicenter of Covid-19. With a declining working age population and China’s autocratic militaristic outlook paving the way for further instability has companies moving out of the once dominant status the country held in the manufacturing space.

Happy New Year!

Although these are just educated and informed guesses, it is unlikely that the market moves in a direction too different from the established path. India at the very least with it’s growing working class population will be forced to innovate to accomodate this massive human resource or buckle under it’s weight. What do you think about 2021? Let us know in the comments!

May this year bring you joy and prosperity!