A turbulent 2020 ended with easing off on many fronts. The Covid-19 vaccines arrived rather ahead of schedule. The logistical challenge of rolling them out, with the necessary production capacity and equitable distribution, must now be mastered. A healthy recovery of the global economy by the second half of 2021, a frequently mentioned objective, thus seems realistic. Even if the 2019 level is still difficult to achieve in 2021.
The US stimulus package has passed Muster
Central bank and government stimulus packages can obviously help. In the US, the usual alliances have been shaken up, perhaps to the benefit of a more generous programme than the Republicans in particular had hoped for. A new tranche of $900 billion appears to be in place. It could be increased by $2,000 (instead of $600) for low-income citizens.
The consequence of these new efforts is that the US dollar has continued to weaken. Against the euro, for example, the single European currency has happily broken through the 1.20 threshold, which it had not reached since the spring of 2018.
Brexit with a last-minute agreement
By contrast, sterling was much more hesitant for a long time against the dollar. Freed from the weight of uncertainty surrounding a no-deal Brexit, it appreciated both against the dollar and the euro at the end of the year.
The last-minute agreement between the United Kingdom and the European Union avoids the leverage of high customs duties and numerous blockages. The measures taken to isolate the UK after the outbreak of a much more contagious mutation of the Coronavirus had given a foretaste of the “hard Brexit”.
New lockdowns put the brakes on
Despite these improvements, it is important to remember that the second wave of the pandemic has kept economies in a sluggish state over the past quarter.
After a strong summer recovery in Eurozone GDP, which still fell short of 2019 levels, many sectors suffered declines in what was usually a strong quarter. The effects are likely to continue with the new backdowns enacted by many European governments.
The United States has never had drastic health measures at the federal level, with the exception of travel. However, a slowdown in the economy is being felt. The December purchasing managers’ indexes (PMI) clearly show that the services sector has also been affected. But we are talking about a slowdown in growth, not a decline.
The question for Europeans, however, is how the recovery in the US will unfold in 2021. A much more dynamic development than on the Old Continent, generated by the plan voted by Congress, could put pressure on.
European PMI indices point again to a recession
As the December Eurozone PMI indices remained below the 50 point mark that signifies growth. As the surveys were conducted before the latest backdown decisions, January’s PMIs are expected to show even lower scores.
As for unemployment, it already seems to reflect the different situations between the US and Europe. The percentage of the labour force has certainly fallen further in the United States. But its unemployment rate in November, at 6.7%, is lower than that of the euro zone in October, at 7.6%. However, short-time working is likely to dampen the downward trend in Europe.
Caution in terms of both health and stimulus programmes (not adding too much to the ECB’s balance sheet, nor to governments’ debts) therefore has a price. This attitude is also reflected in the appreciation of the euro.
Commodities, especially oil, point out that activity in 2020 has generally remained well below expectations. It was only in December that the price of black gold again broke through the important break-even point of 50 dollars a barrel.
