2020 is a dark year! At the beginning of the year, COVID-19 was just a regional virus, and none of us imagined it could end up becoming the cause of such a turbulent year. As of 27th November 2020, the pandemic has infected 105 million people worldwide, and 1.44 million are dead.
Social distancing measures are carried out to contain the spread of the virus and have widely disrupted economic activity, causing businesses to shuttered, workers are staying home, and people have been asked to put their lives and livelihoods on hold. This is a significant economic and personal cost. Unemployment is at a record high in almost every country.
The pandemic wasn’t the only problem in 2020. There was a myriad of other events such as the Australia bushfire that have killed as many as 500 million animals, the Beirut explosion was one of the largest non-nuclear blasts ever recorded, the Hong Kong protest that has been going on for nearly a year, and we’ve seen devastating floods happening in Japan, India, Indonesia, and China.
Though 2020 can be the worst of times, it was also the best of times. Telemedicine is one of the extraordinary growth stories of this pandemic. The Asian-Pacific trade agreement, creating the world’s largest trading bloc without either the US or Europe, Donald Trump becoming the first president in nearly three decades to lose reelection.
Sign of economic recovery in 2021?
When Pfizer announced their COVID-19-vaccine candidate was 90% effective and when Joe Biden won the presidency, the world cheered on and the mood of optimism spread across the globe.
Stocks in Asia increase by 0.45%. In Japan, the Nikkei rose 1.7% to a new high in 29 years. The leading index of UK company shares also recorded the best week since April. The Dow Jones Industrial Average has topped the 30,000 marks for the first time.
The price of oil drop since the pandemic began as a result of declining economic activity and countries across the globe shut down borders and limit domestic travel, meaning a drop-off in airline and car travel. After the vaccine news, oil prices soared nearly 17% to $45 per barrel for the first time since March. Is all these a sign that the global economy will recover in 2021?
With Trump out of the picture, can Biden pick up the pieces of global trade?
Ever since Trump became president, the U.S. pulled out of the Paris Climate Accords and the World Health Organization. His administration started many trade wars not just with China but also with friendly countries such as Canada and Mexico, angering key allies and creating distrust with the United States.
Trump’s previous trade strategy to decrease the country’s dependence on China resulted in chaos. Hence, after four years of uncertainty, businesses welcomed the stability that might come with the Biden administration. Most experts expect Biden’s trade policy will be more polite compared with Trump’s constant attacks against China, including over the pandemic.
The National Retail Federation says “The U.S. economy, including farmers and exporters and manufacturing, will benefit from a de-escalation of trade tensions around the world”.
Optimism towards the new vaccines
Though recently reported successful trials, Pfizer and AstraZeneca vaccine still have multiple hurdles to overcome before it receives safety approval. Hopes are rising and investors appeared positively giddy, Dow Jones, S&P500, Nikkei have new records high in 2020.
After a vaccine begins rolling out (hopefully in a few months), a return to ‘normalcy’ with a swift economic rebound seems likely within 2021. Business activity returns closer to normal and tough government restrictions are relaxed.
The most immediate economic effects could include:
- Boost in foot traffic to struggling retailers.
- Resuming office operations.
- Reopening of the entertainment industry, such as theaters, sports stadiums, and entertainment complexes.
- Encourage travelers to fly, stay in hotels, or go on cruises again.
2021 could become the year of travel, people will be making up for missed travel in 2020 and some will be trying to use their travel vouchers before they expire.
Government Stimulus and Financial Relief Plan
Numerous countries’ economies already were slowing before the pandemic, and now COVID-19 threatens to push them into a steep recession.
Governments and central banks worldwide have enacted extensive and sizable fiscal and monetary stimulus packages to stimulate their floundering economy and save their country from a financial crisis. The objective of this plan is to prevent recession by boosting employment and spending.
The US passed three main relief packages, totaling nearly $2.8 trillion.
- $8.3 billion for funding research for a vaccine, money to state and local governments to fight the spread of the virus locally and overseas.
- $3.4 billion for
- Feeding children in need
- Mandate companies > 500 employees to provide paid sick leave for those suffering from COVID-19, as well as providing a tax credit to help employers cover those costs.
- $1 billion to fund unemployment insurance
- Funding and cost waivers to make COVID-19 testing free for all.
- $2.3 trillion for
- Onetime payment of $1,200 a person, plus $500 per child
- $500 billion in government lending to companies affected by the pandemic
- $150 billion in grants to state and local governments
- Over $130 billion for hospitals and health care.
- Mortgage forbearance for federally backed mortgages for 180 days.
- Waived early withdrawal penalties for 401(k)’s for amounts of up to $100,000 until Dec. 31, 2020.
The Federal Reserve also cut its benchmark interest rate from 1.50%-1.75% to 0.00%-0.25% and made several technical changes to hold on to less capital so they can lend more.
Japan stimulus plan
- increased purchases of corporate bonds and commercial paper from $65 billion to $187 billion.
- Package for small business loans worth $4.6 billion.
- $15 billion packages to increase funding for business loans. Including $4 billion for programs to boost mask production and to prevent the virus from spreading in nursing homes.
- $989 billion billed was passed for:
- $930 payment that any resident of Japan can apply.
- Small and medium-sized businesses, as well as freelancers, can apply for amounts up to $18,534 if their incomes have been significantly affected by the virus.
- $241 billion in tax deferments for businesses and increased funding for medical supplies.
- $1.1 trillion billed was passed for:
- rent subsidies for individuals as well as small and medium-sized businesses.
- onetime $1,860 payment to each front line medical worker
- Increase subsidies to businesses hit by the pandemic.
- The creation of a $93 billion emergency fund
EU Stimulus plan worth $860 billion
- The emergency fund will give out 390 billion euros of grants and 360 billion euros of low-interest loans.
- Almost a third of the funds are earmarked for fighting climate change, which will help member states address the economic and social impact of the COVID-19 pandemic whilst ensuring their economies undertake the green and digital transitions.
- The funds will begin from January 2021 until the end of December 2024.
- Bank of America analysts believe the economic stimulus is “too small and too late” to meet the urgent economic needs of the EU, but stated that the package’s “symbolic power likely trumps the economics”.
Recovery by 2021, or prolonged recession?
The financial markets play an essential role in contributing to the health and efficiency of an economy, though occasionally stocks may be misleading. Typically, the relationship between the stock market and the economy is aligned as stocks move on news that conveys information related to the economy.
Financial markets help to funnel savings and investment into the economy in a way that promotes the capital acquisition and the efficient production of goods and services.
As the world waits for a COVID-19 vaccine, the dark days seem to be behind us. Though there are still many rough terrains ahead, however, the experts expect things to get better as the economy is on its track for a recovery.