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Recession, oil, fintech, crypto, China and GCC economies in 2021 and beyond

Which economic sectors and countries will be the biggest winners and losers in 2021 and beyond?

The long ascent out of this year’s deep recession will be uneven, uncertain, and prone to setbacks China in a prime position to secure a spot as the world’s dominant superpower for years to come The GCC payments industry is set to leapfrog other major economies in 2021

Which economic sectors and countries will be the biggest winners and losers in 2021 and beyond? 

All the expert insights you need are lumped here so you can get a head start on the new year. 

Recession

LinkedIn’s 21 Big Ideas that will change the world and the GCC in 2021 included a look at how synchronous global shutdowns as the pandemic proliferated led to conditions that now expose an underlying recession, quoting Ernie Tedeschi, an economist. 

Industries that weren’t directly affected by the health crisis are now experiencing job losses, business failures, and declines in spending; more layoffs that were originally classified as temporary are being classified as permanent, and the rate of long-term unemployment is on the rise.

Economist Mohamed El-Erian deems the risk of a subsequent recession “high and rising”, based on global data he’s watching from the manufacturing and services sectors.

“The long ascent out of this year’s deep recession will be uneven, uncertain, and prone to setbacks,” Kristalina Georgieva, the head of the International Monetary Fund, told LinkedIn News. “The road to strong, sustainable, balanced, and inclusive growth will be long and difficult.”

Read: OPEC saves the day, but will the oil production compromise satisfy the UAE long term?

Oil

Price rebounds are unlikely to continue in the first half of 2021, says global energy market observer Cyril Widdershoven, as OECD economies will not manage to recover by that time, and storage will keep building up.

Some experts, like Bank of America Merrill Lynch’s Francisco Blanch, think ‘oil cannot gain significant momentum until the demand for distillate, including jet fuel, recovers.’

S&P Global Ratings expects a broad recovery across hydrocarbon and nonhydrocarbon sectors, over the period to 2023. Its base case assumption is that OPEC+ production cuts, amounting to about 17% of October 2018 production, end in April 2022.

Current assumptions see Brent oil prices averaging $50 in 2021-2022 and then $55 in 2023 and beyond.

On December 14, OPEC cut its forecast for world oil demand growth to 5.9 million barrels a day, down 350,000 barrels a day from its previous projection.

China

China’s economy grew by 4.3% in the third quarter of this year, and its citizens are living a largely normal life thanks to strict lockdowns that stopped the virus’ spread and now leads fifteen Asia-Pacific economies that formed the world’s largest free-trade bloc in November, the Regional Comprehensive Economic Partnership (RCEP). 

All of this puts China in a prime position to secure a spot as the world’s dominant superpower for years to come. 

China will also be leading the central bank digital currency (CBDC) future of the money race

2020 was a banner year for CBDCs with 80% of central banks active on them and helped by Facebook’s Libra (now called Diem), which is expected to launch in early 2021. 

2020 was a record year for stablecoins with assets growing from less than $5 billion at the beginning of the year to over $25 bn by this December. 

Diem aims to make sending money around the world as easy as sending an email or a message on WhatsApp, helping reduce cross-border retail money transfer and remittance fees that are still around 7%.   

China continues to move forward with its digital renminbi (called DC/EP), blazing the trail when it comes to the future of money. In its last pilot phase, more than 2 billion RMB of value ($300 million) were transacted via 4 million transactions using the digital RMB. 

Read: After dropping $3000, Bitcoin nearing its all time high, but why?

Bitcoin

While 2020 has been a very difficult year, it has, ironically, been a catalyst year for crypto.

Henri Arslanian, Global Crypto Leader, PwC says 2020 saw large institutions such as JPMorgan and Standard Chartered continue to build crypto solutions for clients, many, from Citi to Deutsche Bank, even began regular coverage of the asset class. 

“We should expect this trend to accelerate in 2021 as many banks begin to make their crypto plans public,” Arslanian said. 

While investment banks have been the most active players so far, most of the large private banks disregarded bitcoin as not a serious asset, but expect this to change as high-net-worth individuals and family office clients increasingly look to buy bitcoin.

GCC Payments industry

After a year of increased digitalization and major shifts in the Fintech landscape, the GCC payments industry is set to leapfrog other major economies in 2021.

COVID-19 has had a catalyzing impact on the adoption of Fintech, particularly in the payments space.

In 2020 the Arab Monetary Fund launched ‘Buna’, a cross-border payments platform for the Arab World, while the GCC countries launched the GCC Payments Company, which will build and operate a cross-border, multi-currency, real-time system across the region.

In September 2020, the Saudi Arabian Monetary Authority (SAMA) advised that the country’s cashless transactions target of 28% by the end of 2020 had already been significantly exceeded with e-transactions making up 37% of all financial transactions in the Kingdom.

A similar result emerged in the UAE, where a survey by Dubai Police, Dubai Economy and Visa earlier this year revealed that 68% of respondents have reduced shopping in-store since the outbreak of the pandemic, while 49% shop more online.

In Bahrain, transactions on payments platform BenefitPay are reported to have increased by 367% so far this year, crossing the $3.99 bn threshold in November. 

GCC economies 

S&P Global Ratings expects a modest economic recovery for the GCC over 2021-2023, with real GDP growth of 2.5%, after a contraction of about 6% in 2020.

Bahrain

S&P expects a 5% contraction in 2020 real GDP largely due to weakness in the financial services and manufacturing sectors, and sharp contractions in the transport sector and hotels & restaurants.  

Kuwait

S&P expects economic growth to surge in 2022 due to stronger net exports, driven by rising oil production. From 2023, it expects Kuwait’s economic growth to remain strong. 

Oman

Lower economic activity due to pandemic-driven lockdowns and curfews, the slowdown in global tourism, and planned delays in public-sector capital spending will weigh on the non-oil sector in 2020. It expects a gradual recovery in domestic demand and investment for 2021. It projects real GDP growth of 2.2% in 2021 and 3.5% in 2022.  

Saudi

The sharp decline in Saudi Arabia’s net exports, due to OPEC+ related oil production cuts, brought down real GDP in 2020. S&P sees broad declines across non-oil sectors and steep drops in wholesale and retail trade and restaurants and hotels.

In 2022, S&P expects economic activity to accelerate to close to 3% due to the end of OPEC+ quotas.  

UAE

The sharp drop in tourism and real estate activity will play the leading role in dragging down the non-hydrocarbon sector in 2020. The delayed Expo 2020, which will now take place Oct. 1, 2021-March 31, 2022, should provide a platform for a recovery in activity.