Growth prospects for 2021 and 2022 are improving
With global GDP now projected (by the OECD) to amount to 5.6% this year – an upward revision of more than 1 percentage point compared to 3 months ago. The reasons are twofold: (1) the vaccine rollout is uneven but gaining momentum, and despite a resurgence of cases in many countries around the world, it appears that vaccines are edging ahead in the race against the variants; (2) the mammoth size of the $1.9tr US fiscal support package that should raise US real GDP by 6.5% this year and 4% next year, with spill-over to the rest of the world.
The size of the US stimulus and the possibility that another $2tr infrastructure package will be added to it are the clearest manifestation yet that the “big government is over” era is now itself over! And this in the US and in the rest of world. In all OECD countries for the post-pandemic era, expect: (1) more state intervention, (2) more welfare programs, and (3) higher income/ wealth/corporate taxes coupled with the closing of loopholes.
A stronger than expected economic recovery tends to be bearish for emerging markets
- So far and since the pandemic started, ‘only’ 6 emerging markets have defaulted on their foreign debt (Argentina, Belize, Ecuador, Lebanon, Suriname and Zambia), but this should not be construed as a sign of relative emerging markets stability. Some big nations like Brazil and South Africa have borrowed domestically at a much higher rate while shortening the average maturities – an important risk factor if the recovery takes longer or is weaker than expected. More generally, when the global economic recovery takes hold, it will lead to an increase in bond yields that will trigger capital outflows in emerging markets. In middle-income countries with high debt levels and large external financing needs, a financial crisis could cascade into a social (hunger, unrest) and even geopolitical (conflict) crisis.
- The sharp global deceleration of population growth is an under-appreciated yet critical phenomenon for long-term investors and business leaders. While this is primarily driven by social choice, endocrine disruption (that has caused a 50% decline in sperm count over the past 50 years plus soaring miscarriages) is also an important contributing factor. Now COVID has added another incremental effect by causing a global baby ‘bust’ (since the pandemic started fertility rates have declined by up to 15% in most developed countries). This could bring forward the projected date of peak global population by 10 years – into the 2050s. How will this pan out? In the next 30 years, the number of people aged 65+ will double globally (reaching 1.6bn) – with the fastest ageing growth in developing countries. The population of countries like Japan, Italy, Russia and South Korea will drop precipitously (by more than half before the end of this century). Others, like China (where the number of people over 60 will reach 35% in 30 years) will become old before having had a chance to become rich.
- The current migration crisis in the US is just the latest example of the climate risk mutating into a societal one. The interdependence between climate change, conflicts and migration is highly complex, but broadly speaking, extreme weather pushes those hardest hit (the poorest people in the poorest countries) to the rich North (the US and Europe). Already a structural phenomenon, climate migration is destined to get worse, straining politics. For democratically elected policy-makers, balancing humanitarian concerns with political and economic considerations will involve complex and difficult trade-offs.