CIO Insights – Turning The Page On 2020

Economic snapback to fuel global growth. We have a very optimistic outlook for 2021, with above-consensus GDP calls around the globe. We expect global growth of over 6%, with growth in the U.S. and Europe of between 5% and 6%, while China and India could see growth of 9% or higher. We expect this growth to be driven by a rebound in economic activity as pent-up demand is unleashed with consumers able to again spend in areas of the economy that are currently impacted by the COVID-19 pandemic.

While there is no minimizing the economic pain the virus is causing, we fundamentally believe much of the weakness in the economy stems from a lack of opportunity to spend not a lack of ability to spend. Several sectors of the economy, such as entertainment, travel and restaurants, currently remain extremely restricted, keeping consumers from spending in these areas. However, consumers in aggregate continue to have disposable income sufficient to fuel their desired level of spending. This has elevated the savings rate to an unsustainable level. The pre-virus savings rate hovered around 7%, spiked above 30% during crisis and was running around 13% as of November. The most recent stimulus package will likely push the savings rate back up, further bolstering consumers as millions of people will see $600 stimulus checks and additional unemployment assistance. That relief is likely to help sustain consumer spending as we move toward a return to normalcy.

If we break out spending into durable goods, nondurable goods and services, the impact of pandemic-related spending restrictions becomes evident. Spending on durable goods is roughly 13% above pre-virus levels, while spending on nondurable goods is roughly 4% above. However, spending on services is still down roughly 6% since the onset of COVID-19. As we move through the year and vaccination levels lift us toward “herd immunity” resistance levels, we believe some service categories will start to normalize, which is likely to trigger a sharp upward inflection in growth. We expect to see the biggest rebound in sectors that have suffered the most under COVID-19 restrictions. Recreational travel should see strong demand once the public feels comfortable traveling again. However, we believe business travel will probably be slower to recover as corporate America has learned work can be done remotely. Movie theaters and other entertainment venues also are likely to bounce back as vaccination levels rise. Finally, we would highlight restaurants. Sadly, many eating establishments have not survived the pandemic, but those that did could see share gains in addition to strong demand.

We expect this snapback in growth to begin late in the first half of 2021 and extend into the second half of the year. This should be the strong point for growth not only in the U.S., but for developed markets globally as well as for China. We expect that larger emerging market economies will probably lag this return toward normalcy by about one quarter, while smaller emerging market countries will be the last to see a return to normal.