Despite Covid-19 impact strong economic spur expected in 2021, says Mercer

SINGAPORE – Despite the current gloomy economic climate comes an optimistic look into the opportunities that 2021 brings. A strong spur in the global economy is expected this year, according to a recent research.

The research was recently released in the form of two papers by American consulting firm Mercer. One paper, “The Great Acceleration: Themes and opportunities 2021″ talks about the major the economic forecasts for investors for 2021 and beyond. The other titled “The Road to Recovery: Market outlook 2021” forecasts a growth in corporate earnings as well as the equity markets.

“Nonstop social and technological change has increased at a rate as exciting as it is bewildering. COVID-19 has resulted in an acceleration within that acceleration,” said Deb Clarke, global head of investment research at Mercer.

“The pandemic has expedited significant changes in pre-existing trends, some of which we believe may recede somewhat as the public health threat diminishes due to factors such as mass vaccinations, but we think that others such as online retailing and sustainability, are here to stay,” she said stressing for the need for every individual to be aware of these factors to be and to invest wisely.

According to the research, the three major themes for the economy in the post covid world are innovations, opportunities in private credit and transition plans. On the first factor, the research said, “Monetary and fiscal institutions are piloting new techniques in an effort to ensure economic stability and continuity as a result of the pandemic, while global allegiances and working relationships are being re-cast. This may have an impact on inflation, risk considerations and the appeal of opportunistic investment strategies.”

It further says that while businesses adjust to the new normal, there will be opportunities in private credit line in restructuring finance and distressed debt. “Unconstrained managers in public markets may also be able to find yield pickups from assets subject to ratings downgrades from investment grade (fallen angels),” says the paper. It also warns institutional investors to consider putting together a climate-transition plan in order to mitigate risk and to assess their portfolios’ ability to weather the move to a more sustainable future.

The second paper starts with describing the economic downturn in the beginning of 2020 brought about by the government-imposed lockdowns and various restrictions in response

to COVID-19 which brought down the economic growth by 30%. However, it notes that the growth was quick to come back on track once the restrictions were lifted. The paper gives a very upbeat forecast saying that the global economy will not only continue to grow but also make up the lost ground this year, especially with the vaccines being developed.

This growth, however, is not expected to be universally homogeneous. The pattern of growth in East Asia and China will not be the same as that in Europe or USA, based on the varied impacts of the pandemic on them. To prove this point, the paper gives the examples of China and Japan.

The Chinese economy tanked in the first quarter of 2020 but recovered quickly to reach levels where it was expected to reach had the pandemic not broken out. Meanwhile, Japan’s economy which was struggling in the pre-covid times bounced back in the recent months by 21%. In fact, a further growth of 8% is expected in the first quarter of 2021. The pace of recovery in different countries will depend on factors like government stimulus, virus dynamics, business spending and the way the global economic recovery drives export demand.

Janet Li, Wealth Business Leader Asia at Mercer said, “The pattern of growth is not uniform across the markets in Asia, particularly those that continue to be weighed down by restrictions. We expect many Asian markets (ex-China) broadly to follow the trajectory of developed markets.” She goes on to say that the economic growth i across Asia would continue its upward trajectory unless hindered by some extreme events like a sharp deterioration in the US-China relationship that would prompt conflicts on trade and technology fronts or uncontrolled outbreaks of the virus.

“The human and economic cost of COVID-19 has been enormous. That said, from an economic standpoint, the crisis has led to new and innovative businesses and to the evolution of existing businesses,” said Rupert Watson, head of asset allocation at Mercer.