Jeffrey Ball, investment manager for Brewin Dolphin Charities, which assists charities in the North East with their investment strategies, looks at what may lie ahead for the world economy.
Should we feel bullish entering the year of the ox? With a global economy ensuring its deepest ever peace time recession, you could argue that we should because, well, it cannot get any worse, surely?
The struggles of 2020 started with gasps of uncertainty and fear in March that brought the economy and the stock market to its knees. However, investors are more forward looking than the economy, with the market bouncing back from April onwards on the back of stimulus spending, vaccine news and lifting restrictions as investors saw through the noise and pictured a world in a better place in a year’s time.
That does not mean we know the economic scars of the pandemic yet, as we continue to use the Elastoplast of government support measures, but there are prospects of a brighter year ahead – the return to ‘normality’ we all crave. The first half of 2021 therefore will likely focus on tentative step forward while suppressing more Covid-19 outbreaks and the logistical challenge of administering the vaccines.
Investors see the pandemic as having accelerated a number of trends. Technological innovation will continue to thrive. All of us that work in an office have considered if we must return to the Monday-Friday commute. Shopping too has seen a structural shift in habits that will remain, incorporating the best parts of the online world we were forced into.
Sustainability is an area we expect to see an acceleration, with a bevvy of net zero pledges from countries this year, including from China, the world’s biggest carbon producer. With the next Paris Agreement-level meeting due in November in Glasgow, more companies will follow suit with their own net zero targets.
Investors are feeling bullish for 2021 but it is fair to ask if the good news is already priced in, leaving the stock market susceptible to disappointment – for example, if the recovery is slower than expected. That means there could be volatility in the short term but overall, we expect to see economies boosted from pent-up demand.
Regardless of a Brexit trade deal, the end of the transition period gives the UK some certainty after years of stagnation, with economic growth coming from reducing restrictions on the economy. The UK will not return to pre-pandemic economic GDP until 2022 but growth will be weighed by the scars of job losses, business closures and lockdowns.
In the US, it would be a case of the economy catching up with the stock market, with the S&P 500 index already seeing one of its fastest ever rebounds thanks to a bevvy of technology stocks keeping the economy moving. President Biden should bring a more strategic approach.
Having suffered first, China has the edge of controlling the virus and is recovering ahead of everyone else. Arguably it has emerged stronger and will be keen to recover into the 100th anniversary of the Chinese Communist Party in July 2021. The return to form of the US and China in particular will determine the health of the global economy.
Overall, we anticipate that 2021 will be see a less bumpy more sustained recovery with those sectors hurt by the pandemic in particular recovering. However, if 2020 can teach us anything, it is that it is as hard to see what will lay us low as it is what will be a shot in the arm.
To find out more about Brewin Dolphin’s investment management services for charities, contact Jeffrey Ball on 0191 279 7545 or at jeffrey.ball@brewin.co.uk. For more information visit brewin.co.uk/charities.