How 2021 will be new chapter in American, global horizon

MUSCAT: The US election hyperbole is slowly subsiding as President-elect Joe Biden is due to take office this January. The challenge though of his new office does not end there as he has to get the favour of a possible Republican-majority in the Senate and gradually overcome the massive problems of the country, from business bankruptcies to unemployment and the COVID pandemic. If it is of any assurance, his office will be receiving a $1 trillion stimulus package, but will this be enough to quench the ever-rising problems and economic scars? Let us analyse each scenario and how the year, 2021, looks like for a new chapter in the American and global horizon.

COVID-19 pandemic has proven catastrophic; currently there are almost 2 million deaths and 76 million cases with the numbers still rising. With the FDA vaccine approval this January and mass immunisation to be implemented, tremendous recovery will be seen in the business and labor growth in 2021 Q2. The labour market though will see a gradual normalisation and inflation will remain below central bank targets. The Fed, the ECB, and the Bank of England have expressed a long wait until 2025 before hiking rates. United States, among other countries with the highest excess unemployment rate at 10pp, particularly young people, the self-employed, flex workers and vulnerable groups on the labor market, has laid off workforce temporarily but is gradually allowing them to return. A longterm effect of this disparity will cause a big inequality gap, unless government pumps in subsidies like how Europe and Japan mitigated the crisis through retention programs and wage subsidies.

Short/Mid Outlook. Global growth is projected at 5.2 per cent in 2021. This projection implies wide negative output gaps and elevated unemployment rates until 2021 across both advanced and emerging market economies. CPB foresees stricter COVID restrictions if an economic recovery is expected in contrast to 2020 statistics - economic shrink by 5 per cent. Unemployment is projected to increase to 6 per cent in 2021 and if a second-wave scenario will happen, a further 10 per cent increase. Adverse effects include a severe setback to the projected improvement in average living standards across all countries, and the pandemic reversing the progress since the 1990s in global poverty and inequality reduction.

Similarly, public funds deficit will recover by 5 per cent. However, if a second-wave happens, government debt will increase to 72 per cent by the end of 2021, still below the levels considered risky and with no obvious deficit-reducing measures yet in place. Online spending on consumer goods has been a key support to the economy. More mitigating actions are foreseeable, BofAGlobal Research expects a package of $500 billion to $1 trillion in the first half of 2021, and the stimulus will likely include enhanced unemployment insurance benefits, directly boosting personal incomes. Additionally, President-elect Biden has plans to add consumer stimulus and ease the student loan problem

In summary, real consumer spending growth in 2021 will be the fastest upsurge since the early 1980s recorded at 6 per cent. Overall GDP growth can benefit from an associated inventory build in the next quarters. The US Bureau of Economic Analysis’ (BEA’s) business inventory to sales ratio is at its lowest level since 2012. However, businesses are planning to pivot and revamp for the second half of 2021 when COVID vaccine immunisation has proliferated and things bounce back to normalcy.