• 2020 in brief
• 2021: How the global economy is shaping up
• An effective roll-out COVID-19 vaccine holds the key to global economy in 2021
• From pandemic to recovery  Global economy to recover despite challenges from the pandemic
• Strong 2021 growth likely
• Policy takes the lead
• All eyes on fiscal policy
• Coordinated monetary support from global central banks

2020 in brief

2020 did not exactly turn out the way many expected a year ago. It has been a troubled year, with the COVID-19 pandemic wreaking havoc across the global economy and exacting a heavy toll both in terms of fatalities and also livelihoods. While the global economy has emerged from the great lockdown situation in the second quarter of 2020 with the sharpest slump seen in many years, synchronised monetary and fiscal policy support including significant government transfers has been forthcoming which helped to head off some of the worst economic effects of the pandemic

COVID-19 had caused a massive health crisis claiming more than 1.6 million lives, with many countries seeing at least two waves. It kept many confined to their homes and shut down big chunks of economies, driving the biggest fall in economic activity since the end of WW2 if not the Great Depression, with major economies seeing peak to trough falls in GDP of 10% to 20%. This saw unemployment surge and inflation plunge. Share markets had 35% or so plunges in February/March, commodity prices collapsed with the oil price going negative at one point as investors sought out safe havens like bonds.

However, while 2020 is a year many of us would prefer to forget and coronavirus continues to wreak havoc in much of the world, the end result for economies has not been as bad as had been feared back in March and April. This reflected a combination of (i) an unprecedented and rapid fiscal stimulus that protected businesses, jobs and incomes; (ii) massive monetary stimulus that saw interest rates plunge; (iii) Social distancing which has helped contain the virus enabling some reopening – albeit better in some countries than others. This enabled economic activity to bounce back faster than expected through the second half of the year as restrictions eased.

However, resurgent waves of COVID-19 infections since then have prompted some countries to slow down their re-opening and reinstate partial or localised lockdowns. While China’s recovery appears to be well underway, other major economies have not been so fortunate to recover back to pre-pandemic levels amid setbacks due to the ongoing spread of COVID-19 infections. High-frequency activity indicators also point to a levelling off in terms of growth momentum, apart from manufacturing activity which has been leading the recovery story. Productivity has also generally taken a hit during the lockdown periods.

Source: BIMB Securities Research - 17 Dec 2020