Complex Made Simple

How are global and regional economies entering 2021?

As many as 320 COVID-19 vaccines are in advanced trials but it will take many months of logistical nightmares to administer the inoculations. Is 2021 any different than 2020 for the global economy?

The IMF projects that this year, global real GDP will fall –4.4%, bouncing back 5.2% in 2021 According to S&P Global Ratings, global banks in 2021 will face the next test once financial support wanes Debt issuance in the MENA during H1 2020 show the figures at an all-time of $69.5 billion

The good news for 2021 is that COVID-19 is facing its toughest test, as an onslaught of vaccines,  as many as 320 in advanced trials, will make their way to people and countries, starting with the UK, Russia, the US, and Turkey among others.

The not so good news is that it will take many months of logistical nightmares to administer the inoculations to billions of people and the devastating impact of COVID on 2020 economies will remain with us for the medium term.

Here’s what we know.

Read: This is what Aramco’s Q3 profit numbers mean for Saudi’s economy

Global economic rebound and outlook   

According to the Visual Capitalist, the International Monetary Fund (IMF) projects that this year, global real GDP will fall 4.4%, bouncing back 5.2% in 2021.

This infographic from New York Life Investments traces the notable events of 2020, along with growth forecasts for the year ahead.

Since COVID-19 was declared a pandemic, $12 trillion in global fiscal response helped stabilize the economy.  

In April, oil prices dropped into negative territory for the first time ever. The combination of both a demand shock and supply shock led WTI oil futures to fall to -$37.63. Since then, oil prices recovered modestly, hovering close to $45 in November.

On November 16, Moderna announced that its COVID-19 vaccine was 94.5% effective, just days after the 2020 president-elect, Joe Biden, was announced.

Despite the number of record-breaking incidents over the year, the tech-dominated S&P 500 held steady. Here is how key economic figures have materialized against the backdrop of 2020:

 

According to S&P Global Ratings, global banks in 2021 will face the next test once financial support wanes. 

“The sharp rebound in global growth we expect in 2021, together with strong bank balance sheets, support from authorities to retail and corporate markets, and regulators’ flexibility, should limit bank downgrades in 2021,” S&P said. 

“The pathway to recovery to preCOVID-19 performance levels will be slow and uneven.” 

S&P said: 

1. Central banks’ actions will remain positive for funding but weigh on banks’ interest margins and profitability. 

2. The pandemic accelerates bank digitalization and could trigger another round of restructuring and consolidation.

Key Global economic figures

Here is how key economic figures have materialized against the backdrop of 2020:

Government Debt

Government debt rose 20% relative to GDP in advanced economies, while debt has grown at a slower pace in emerging markets and low-income countries.

Read: MENA mergers and acquisitions up to Q3 2020 and 2021 outlooks for UAE, Saudi

2021: Global Growth Outlook

Since the IMF’s June projections, economic growth forecasts have somewhat improved. Primarily, optimism is being driven by Q2 GDP growth that exceeded expectations.

 

Regional debt, mergers and growth outlook

The official league tables for debt issuance in the Middle East and North Africa (MENA) region during H1 2020 show the figures at an all-time of $69.5 billion between January and June 2020, up 26% on the same period in 2019. 

MENA mergers and acquisitions recorded during the first half of 2020 hit $50.7 bn in value. It is the third-highest first-half total of all-time after 2019’s $112.7 bn and 2007’s $58.5 bn. That would not be possible if investors did not believe in the long-term potential of the region.

HSBC’s economists expect growth to begin bouncing back in 2021. Regional issuance in the debt capital markets is on course to top $100 bn and the current pace of issue suggests that 2020 will be a record-breaking year.

HSBC said there is a clear appetite from investors to take a stake in this region and it would not be a surprise if the total value of inbound transactions did not hit the $20 bn mark by year-end to set a record.