Today is an important milestone in the fight against the pandemic: in the United Kingdom, the first vaccine has been inoculated. If these work, economies will grow strongly in 2021. Therefore, operators and investors have a lot of work ahead of them to anticipate the pace of the recovery and the potential consequences it will have on financial markets.
During the pandemic thus far, the “solution” to the crisis has come from the United States. Only after the Federal Reserve opened lines of trade for US dollars with the rest of the world did financial markets stabilize and governments and policy makers had room for maneuver to fight COVID-19. Therefore, those who are able to predict the performance that the United States will have by 2021 will have a competitive advantage in the stock market universe.
Return to the pre-pandemic growth trend
The US economy is expected to contract by around 4% in 2020, but to recover in 2021 and grow by 4.7%. The main problem here is the volume of fiscal stimulus expected for the first half of next year.
The market expects a second round of fiscal stimulus, but it is difficult to estimate how due to the division in Congress. Estimates range from $ 500 billion to more than $ 1 billion. The difference is large enough to have a brutal impact on economic growth in 2021.
Personal consumption is expected to recover strongly. The savings rate has increased substantially in 2020, as households were cautious about the health situation. However, as the vaccine does its job, consumer confidence should increase, which would translate into a savings rate falling towards normal levels. In other words, that surplus should return to the real economy, something that would contribute to its growth.
Latent inflation is likely to persist. Despite the fact that the Federal Reserve prints dollars and more dollars, the economy seems to evolve below its potential, something that may mean that inflation threats do not materialize until the economy reaches the expansion trend before the crisis. This gives the Fed more leeway in case the pandemic continues to cause unexpected changes.
Obviously, how the pandemic unfolds is key to any economic forecast. Effective vaccines and mass vaccination will lead to a faster recovery. But what about the potential problems of the impending vaccines?
Well, there is still a lot of uncertainty around them, but, at least, the light is already visible at the end of the tunnel. And it is that, not in vain, today the vaccine has been inoculated to the first patient.