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Best of the Web - December '20

Executive Summary

The global economy ends 2020 off on the same note it spent most of the year on, withCovid-19 cases rising again over the Northern Hemisphere’s winter.. However, vaccinations have greatly improved the economic outlook for the next year.

How is the new surge of Covid-19 affecting the world?

After seeing a 2nd and 3rd wave of Covid in the months preceding December, Europe and the US are now starting to see yet another surge in Covid-19 cases . Global cases are now close to 75 Mn, while the death toll has exceeded 1.6 Mn.

A winter surge batters the Western world: The rising cases across the Western world’s winter are expected to push the final quarter into a recession in many countries, or at least dent the recovery seen in the 3rd quarter. Unemployment might be especially vulnerable, as an increasing number of people are seeing permanent layoffs.

Economic stimulus might be shaky as well: Although record stimulus was passed this year, it seemed insufficient to deal with the true magnitude of the pandemic. Now, as things get worse once again, reluctance to move forward with further fiscal stimulus in the US and Europe might severely weaken any recovery.

Vaccine optimism is helping the world to soldier on: Pfizer’s mRNA vaccine has now been authorized in multiple countries, and vaccination programmes are underway. Pfizer’s success is boosting hope that more vaccines will be proven effective in the next few months, and is keeping hope alive.

How will 2021 fare?

Vaccine timelines for different countries could vary: Although the developed world seems on track to achieve successful levels of vaccinations by the middle of the year, only 10% of the developing world’s population is on track to achieve any vaccination. Unless distribution becomes more equal, the global economy could suffer for longer.

A short-term boom in consumption expected: As vaccinations allow a sense of immunity, analysts expect significant boosts in consumption next year, as people spend heavily after experiencing a very bad year. However, with structural damage being done to the economy, this boost might be short-lived, and a full recovery might be a lot more gradual.

Financial and economic system vulnerabilities could be exposed further: As the immediate demand suppression wears off, there are worries of what such a record low-interest rate environment would mean. Financial bubbles, rising inflation, and debt avalanches are all being talked about as possibilities.

How have commodities been performing?

Oil prices rallied with vaccine hopes:

Prices of oil continued to rally in December, boosted by continuing optimism that 2021 would see a boost in global energy consumption. Prices were also supported by supply increases that weren’t as large as they could have been. Prices rose from lows of US$ 47.72 on the 1st of December to highs of US$ 60.76 on the 15th of December.

Gold prices were broadly higher with conflicting vaccine and stimulus news:

Gold prices recovered slightly in December, as worries over the winter period and what US fiscal stimulus would look like weakened the dollar and strengthened inflows into bullion as well. Prices rose from a low of US$ 1,780.90 per ounce on the 30th of November to highs of US$ 1,874.90 per ounce on the 8th of December, before moderating afterwards.

Top 5

After the pandemic, will inflation return?

Low interest rates could combine with a consumption boom in 2021 and cause a surge in inflation. While this would be short-lived, the bigger danger is that this triggers a structural trend of inflationary pressures caused by ageing populations and deglobalization. Although this remains a low-probability, countries need to be prepared for what a high-interest rate environment could mean.

Across US and Europe, pandemic’s grip on economies tightens

As the Christmas period is expected to cause significant surges of Covid-19 across the developed world, so too are the economic impacts expected to grow. Data indicates that companies are pulling back on hiring, and although the ECB has pushed more stimulus to deal with the current damage, it remains to be seen whether future harms are even touched.

How debt-to-GDP is rising around the world

The global economic situation is unlikely to improve anytime soon. Falling revenues combined with costly pandemic relief measures have increased global debt by $20 trillion since the third quarter of 2019. By the end of 2020, economists expect global debt to reach $277 trillion, or 365% of world GDP.

Rollout Gives Fresh Spur to Low-Rate-Loving Emerging Markets

Continued support from central banks and optimism that coronavirus vaccine developments will sustain a global economic recovery next year have fueled a rush to riskier assets, sending gauges of developing-nation stocks, currencies and bonds to six straight weeks of gains. Expectations of continued low interest rates could make emerging markets further winners.

Chinese state-owned companies are in trouble. That could hurt the global recovery

Private companies in China, of which many are directly or indirectly controlled by the state, are facing a wave of debt defaults. This underscores weakness in the Chinese financial system, and is raising concerns of whether China will face dollar liquidity pressures, preventing its global financial support.

Compiled by: Chayu Damsinghe

Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment as of the date of the material and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities or financial instruments mentioned herein. Securities or financial instruments mentioned herein may not be suitable to all investors.


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