2021 Outlook: Review of the Year of the Coronavirus and a look ahead at a post-COVID world

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In the spring, the economy came to a halt because of lockdowns in large areas of the world. The PMI index that indicates the confidence of purchasing managers in the economy improving and where a value higher than 50 represents expected economic growth even dropped in April from 55 to 15. The eurozone was hit especially hard. There has, however, also been a first and second wave in other regions of the world, and in the U.S. even a third wave​.

Will the second wave and lockdown have more far-reaching effects than the first one?​

​​What is even more noteworthy: the first lockdown hit the economy in a more general sense. In the second lockdown, we see, for example, that the services sector continues to be weighed down, but that industry is experiencing relatively little impact. 

At the start of the first quarter, the economy collapsed. This led to much pessimism, and rightly so. This was also immediately the reason for unprecedented support measures from governments and central banks such as both the European Central Bank (ECB) and the Federal Reserve (FED). China, in turn, supported its economy through massive loans. All these efforts have prevented the worst from happening.

An important difference with the financial crisis is that the coronavirus crisis is an ‘event-driven’ crisis and not a structural crisis as in 2008. The blow in the spring of this year was sudden and very severe, and people all over the world were affected by the crisis in one way or another. This has a great impact on the willpower of the average citizen. The will to return to their old lives as soon as possible ensured that the recovery was much faster and more robust than expected. ​

​“The coronavirus crisis is an ‘event-driven’ crisis: sudden and very severe. A big difference with the financial crisis of 2008.”

At the end of 2020, we can see that most asset classes are at their highest YTD levels or very close.

Europe is trailing slightly behind, as is often the case. However, the catch-up manoeuvre has been strongly felt in the last few weeks. Not all European countries have been hit as hard by the crisis. Germany, for example, is the leader of the pack. This is in stark contrast to countries such as Spain where tourists staying away is greatly felt.

Although volatility continues to drop, a disturbance is always possible as, for example, we saw when the second wave hit in Europe or in relation to the presidential elections in the U.S. We must, of course, stay alert to a new flare-up of the virus. The distribution of the vaccines are just around the corner and we must prevent a third infection wave in Europe no matter what this may cost.

The “square root” scenario is the most likely with, after the sharp drop and a levelling off this summer, a further recovery in 2021, but not as strongly as the recovery during the past months. We will see a reasonably weak first quarter for 2021, but still with growth when compared to the fourth quarter of 2020. Afterwards, we are expecting greater growth with low inflation figures. In the last few weeks, this scenario has been strengthening under the impulse of the very positive vaccine news.

​​“The positive vaccine news strengthens the square root scenario.”

In the eurozone, the European recovery plan is of the utmost importance, especially for the hardest hit countries such as Spain and Italy. This recovery plan is an important trump card when compared with the approach during the financial crisis. Now we can definitely see a ‘whatever it takes’ attitude to do better than after 2008.​

​In Belgium, we must not underestimate the effect of coronavirus on our SMEs. The impact on our turnover figures is greater than on the entire economy. Up to now, there have been few bankruptcies. This, however, is only a matter of time due to the delayed effect. With the second wave, very many Belgian companies risk a cashflow crisis next year if the long-term support by the government is not continued. Fortunately, we are not yet at this stage if we examine the unemployment figures that defy all negative predictions for the time being.

The low interest rates will continue. The ECB and FED will not do too much in this area anytime soon. The low interest is being further stimulated by excessive saving behaviour, both by companies and private individuals. This will lead to a permanent downward pressure on interest rates.

A strong increase in interest rates is very unlikely to happen immediately. It is more likely to be a light and gradual increase over the next ten years, but even then, rates will probably not be higher than 0% in the eurozone. 

This event-driven crisis means that little or nothing has changed structurally. The speedy recovery shows that everyone wants to return to the 'old normal'. For 2021, we will therefore see a further recovery of the economy. The general context should also be positive for 2022. The election of Biden will remove some uncertainty worldwide. After a time, however, we risk again to come up against the structural issues from before the coronavirus crisis.

In 2019, you could already notice a cooling of the world economy brought on by the trade war between the U.S. and China and structural issues such as the accelerated ageing population and lower productivity that put a drag on potential growth. We also see in the eurozone that both private individuals and companies are saving a lot and are investing too little in the economy.

“The chance of a cooling of the economy within a few years exists. 

Structurally, nothing has changed up to now.”

The European Green Deal is an opportunity for companies to position themselves and invest in a sustainable economy. I hope that this will be a catalyst for the European economy where Europe takes the lead on the world stage to become climate neutral by 2050 as the first continent. The Green Deal therefore has the potential of becoming a trump card in the long term.