The macro landscape has changed greatly since our previous outlook, in ways good and bad. Around the world, COVID cases have spiked and partial lockdowns are in force, portending a dark winter ahead, as we anxiously await updates on vaccine rollout.
Underneath all this the global economy has been more resilient than expected. Since May, most US data have beaten consensus, despite rises in infections and the lack of Phase 4 fiscal stimulus. China has had strong export growth and a property boom. And the euro area grew nearly 60%, on an annualised basis, from the second quarter to the third. Many economies are likely to be weaker in the fourth quarter but our analysts maintain that the world is better placed than most investors had been counting on, just a few months ago.
Our Research team highlights three macroeconomic themes for the months ahead.
In the US, the Food and Drug Administration had set a hurdle rate of 50% efficacy for COVID vaccines, and most trials were targeting 60%. The 90-95% rates reported by Pfizer and Moderna are startling, and should pull forward effective control of the pandemic by months.
Source: Barclays Bio-tech Equity Research
Assuming no major delays in production, distribution, and implementation, our Research team expects most developed market economies could reach population immunity by the end of the second or third quarter next year. Emerging markets should reach closer to 35-55% of their populations by end of 2021. That’s sufficient to allow reopening while mitigating health risks.
The prospect of faster economic recoveries leads our analysts to upgrade our 2021 global growth forecast to 5.6%, following a 3.6% contraction this year.
In the first 100 days of the Biden administration, the policy agenda will focus on a fiscal stimulus package, steps to combat the pandemic as well as immigration reform, but no tax hikes.
In addition, we expect the new president to reaffirm the trans-Atlantic partnership, reduce trade tensions, and pursue improved relations with Canada and Mexico. US tariffs on China will not suddenly reverse, but the rhetoric is expected to be less heated.
Central banks set to remain accommodative for several years; a likely drop in global trade tensions; and unappetising fixed income returns – all three factors favour risk assets over core bonds. Within equity markets in the developed world, our analysts see a pick-up in the rotation from defensive and growth stocks, into cyclicals and value. In emerging markets – many of which were hit particularly hard by the virus – we expect recoveries across equities, credit as well as higher-yielding FX and local rates.
Source: Haver Analytics, Barclays Research
Barclays’ Global Outlook, published quarterly, contains recommendations for investors across all major economies and markets. Global Outlook: Emerging from COVID’s shadow is available to investment bank clients on Barclays Live.