Get Started

Risk Management | Articles

A look ahead to 2021: Recovery or relapse?

No one could have predicted the turmoil and chaos that 2020 would bring and many are already yearning to finish the year and start fresh.

 
Though all predictions remain to be seen, many are at least hopeful for some type of improvement.
Though all predictions remain to be seen, many are at least hopeful for some type of improvement.

Yet it is unclear if this time will bring an end to the current economic state or if the effects of the COVID-19 pandemic will extend. The predictions of financial experts vary but the general consensus is an astute it depends. However, based on previous downturns, models and current trends, there are some distinct possibilities to consider as we look forward.

Small but welcome growth

Projections for 2021 and the remainder of this year are in flux and have become more conservative as the pandemic continues in many parts of the world. At the moment, the International Monetary Fund is projecting negative GDP for 2020 and a modest 5.4% growth for the coming year. While that figure is lower than their January estimate, it would still be a welcome increase.

Though improving, many numbers are still grim. Such a sentiment was recently acknowledged by Federal Reserve Chairman Powell who predicted a difficult 2020 but a  swift recovery for next year – among the fastest ever recorded. For their part, Morgan Stanley recently forecasted a short recession with soaring 2021 growth.

Though all predictions remain to be seen, many are at least hopeful for some type of improvement.

Another Great Depression? Not so fast

Though there are many valid comparisons regarding our current economic state and the Great Depression nearly a century ago, the two are in fact quite different. Today’s US government released trillions in stimulus and packages to support struggling citizens and businesses – a move that would have been inconceivable in the 1920s and early ‘30s. This move was similarly made in Canada, the UK and elsewhere.

Continued currency volatility

Currency pairs are constantly in flux so even more stable majors like the US dollar or the euro are somewhat unpredictable, albeit to a lesser degree than their minor or emerging market counterparts. However, at the start of 2020, movement between currency pairs was at an all-time low. That period of steadiness made it all the more jarring when volatility roared to extreme heights in the spring when levels matched those from the 2008 financial crisis.

International ties will rise

Understandably, the sudden disruption of global supply chains led many to call for a reduced reliance on foreign imports. However, the reality is that such practices allow for greater production and lower prices – something that will be particularly critical as the global economy recovers. Of course, the companies that isolated their production to a specific country may be looking to diversify in order to help avoid another complete halt in their business. For instance, some who based their operations solely in China may look towards launching partnerships in India, Vietnam or Mexico. 

The cautious optimism of 2021

If COVID-19 demonstrated one thing, it’s that absolute economic predictions are impossible. Still, as the pandemic stretches on to another quarter, some inferences can be made as businesses and individuals alike look toward 2021. The upcoming year is looking like one of modest growth. Those who predict a second great depression, matching the 1930s era, appear to be luckily mistaken as the actions already taken by world governments showcase that central banks are willing to increase their deficit and release historic amounts of funding. Currency volatility, which was historically subdued at the start of the year, is now highly unpredictable with no end in sight. Lastly, despite the trouble global trade has caused for supply chains, businesses are likely to seek additional overseas partnerships in a bid to diversify and avoid future stoppages. Regardless of the specifics, it is clear that although much about 2021 remains unknown, the year – much like our current time – will certainly be different than the past bullish decade.