New Year, Big Themes
The year 2021 has gotten off to a bitter-sweet start on the global front. The de-escalation of the Gulf-Qatar tensions, the surge in Chinese demand, and the upbeat risk-sentiment that have supported rallies in emerging markets and commodities markets, have created a semblance of a return to stability. On the flip side, the adverse realities of Brexit are setting in around Europe and the UK while America’s failed insurrection served as a subtle reminder that democracy is more fragile than many of us realize. And though it is hard-earned, can be easily lost even with the strongest of institutions.
Looking forward, the themes that are likely to shape the global dynamic include:
Vaccinomics: The speedy and equitable distribution of vaccines is necessary to put an end to the vicious cycle of prolonged or renewed restrictions and stop-start recoveries.
K-shaped recovery: Recovery will be uneven and split between industries and income groups. Some economic sectors will take much longer to recover than others while the income levels to the low and middle class will also take much longer to recover than the high income.
Biden-Harris pivot: As America transitions from red-hot Trump to Biden’s seasoned cool, all eyes will be on his foreign policy especially how he manages the prolonged duels with, China and Iran.
De-globalization: The slow-paced recovery in global supply chains poses a threat to existing multilateral structures as more countries will institutionalize supply chain de-coupling policies for health and national security reasons and reduce concentration risk.
Risk sentiment: The expectation of a more diplomatic approach to the US foreign policy under the Biden administration and positive vaccine developments, could further bolster the current global risk-on sentiment and rub-off on international trade, emerging markets, and commodities pricing.
China: From being the epicenter to being the economic outlier, China’s deft in managing the pandemic positions it for a strong post-pandemic bounce as the country’s industrial sector gathers pace to meet pent-up global demand.
Debt distress: The reality of 2020’s expansionary fiscal stance will set in, following the pandemic-induced debt binge. While the timing of the much-anticipated credit crunch is inherently unpredictable, a spate of restructurings is likely especially among emerging economies whose fiscal capacities are currently constrained by lockdowns and/or subdued external demand. Currently, EM debt account for around half of the world economy, and a full-blown debt crisis will have serious spillover effects on financial markets.
AfCFTA: The kickoff of the regional trade agreement puts the region on the path to economic transformation. However, there are still pre-conditions that are yet to be met by some participating countries that will be fundamental to achieving the agreement’s objectives.
E-commerce: The technology solution (e-commerce) to the disruption of traditional retail structures will be even more sticky with consumers and is unlikely to go away brusquely. Uncertainty around the virulence of the mutant strains and vaccine distribution will fuel consumer anxiety, supporting the continued adoption of e-commerce.