Economic Update December 2020

It’s not over just yet

Globally, a surge in COVID-19 in Q4 will weigh on near term growth, although the announcement of promising vaccines has provided some light at the end of the tunnel. We believe policy will need to remain extremely accommodative as economies adjust to a ‘new normal’, with fiscal policy doing most of the lifting given monetary policy has been stretched to its limits.

Global equity markets in 2020
Markets remain relatively optimistic on 2021 growth

Sources: IFM Investors, Macrobond

Equity markets have continued to recover, but the question is whether this confidence is warranted going into 2021? Only time will tell, but our economic outlook remains cautious, particularly in the near-term. This is because of resurgent COVID-19 case numbers throughout the US, UK, and the Eurozone in particular, as we enter the Northern Hemisphere winter.

Australia is an outlier among the advanced economies. The material second wave of COVID-19 in Victoria has been effectively handled. The pain of the required restrictions hit the economy in Q3 but the Australian economy should outperform in Q4 as other countries are again being impacted by the virus, while Australia continues to open up. In the absence of a further outbreak, we should see some consistent growth heading into 2021. But this will need to be supported by ongoing and aggressive policy support.