The Banking Executive Magazine - March 2021

Global Economic Outlook 2021 economies were offset by the hit of the tourism sector and the substantial decrease in remittances. In fact, out- put loss in the region is expected to exceed $230 billion. And as coun- tries have to rely on expansionary monetary and fiscal policies to sup- port struggling businesses, public debt in the region is expected to reach 58% of GDP in 2022, up from 45% in 2019. According to data from the United Nations Conference on Trade and Development, trade is also projected to have fallen by 40% in the region in 2020. In 2021 though, The MENA region is expected to bounce back strongly with a growth percentage of 3.2%, with all economies in the region expected to grow in some capacity (except for Lebanon which is expected to con- tract by a further 6.4%). Yet after the initial rebound, growth in the region is expected to heavily stagnate owing to the following risks. • Weak Fiscal and Health Care sys- tems • Having populations at a constant risk of displacement (eg: Syria) • Increase in short-term inequality owing to the oil sector being the first to recover • Increased US-Iran tensions • Conflicts in Libya and Syria exac- erbating and Yemen’s Peace talk imploding • Delays in the formation of govern- ments in many MENA countries Europe In Europe, real GDP growth is projected to have decreased by 7.4% in 2020, more than during the global financial crisis. The impact was felt most by the region’s more advanced economies, including Spain (-12.8%), Italy (-10.6%), France (-9.8%), and the United King- dom (-9.8%). These contractions were mostly caused by the drop in demand, exports, and tourism, as well as the volatility faced in the fi- nancial markets and supply chains. Nonetheless, the situation could have been more dire still if not for the economic support that governments showed. Job-subsidizing policies, for example, are thought to have pre- served a minimum of 54million jobs and kept demand relatively higher. In 2021, Europe is expected to start its recovery with a forecasted growth of 3.6% founded by enhanced covid- 19 management and preliminary vaccine rollout. In the coming years, it is also advised that Europe re-focus its policies on products instead of people, aiming to solve the conti- nent’s long-standing problems of in- creasing income concentration, low productivity growth, and the short- term struggles in shifting to more cli- mate-friendly corporate standards. The risks that might stand in the way of such progress include: • Insolvency of firms leading to a weakened banking sector at best and a financial crisis at worst • The loss of global chain partnerships • Brexit dampening trade within Europe • The continuance of the cur- rent drought affecting large parts of Eastern Europe Asia Remarkably, Asia was perhaps the continent that most effectively han- dled the pandemic. On average, Asian economies were the fastest to enforce strict lockdown measures, closing after an average of five days following an outbreak. These meas- ures proved fruitful, as Asia is set to contract only 2.2% in 2020 and then grow by 6.9% in 2021. In fact, some Asian economies actually grew in 2020, most notably China (1.9%) and Vietnam (1.6%). What is perhaps even more astounding that despite the growth in 2020, China is still set to grow by a further 8.2% in 2021, making it the world’s most resilient economy during the pandemic. In fact, China is also Asia’s most rela- tively open economy, with schools and the industrial plants fully open, retail and services open with restric- tions, and travel partially open. Quite a few lessons can be learned by the way most Asian economies mitigated Covid-19, for on average, Asian countries exited lockdown with the fewest new cases, showing that it is better for both overall health and the economy to only ease lockdown once the virus has been suppressed. Asian countries, on average, also had the most testing and tracing percent- age in the world, highlighting the im- portance of government initiative in trying times. Nevertheless, some risks still remain for Asian economies to beware off in 2021 and are the fol- lowing: • An escalation in the US-China trade war, and overall tensions be- tween the two political behemoths, could be potentially disruptive to the region’s trade, financial, and technological sectors. • While Asia was relatively effective in curbing the pandemic, the crises that ensued were disproportion- ately impacting the most vulnera- ble classes, with little-to-no government action to prevent the poorest from suffering the largest burden of the costs. • An expected tightening of mone- tary policy directly after the pan- demic could be extremely risky to small and medium enterprises in particular, and to the overall credit and debt markets in general. • An increase in regional geopoliti- cal tensions between India and Pakistan, India and China, and the parties involved in the South China Sea dispute, could lead to a race to the bottom. China Despite being the pandemic’s pivot, China has become the first and only major economy to recover from the consequences of 2020 and enter 2021 with a rather optimistic out- look. The implementation of stable and “time-sensitive” policy re- sponses has allowed China’s eco- nomic growth in the last quarter of 2020 to return to its pre-pandemic levels. In the first quarter of 2020, China’s growth shrank 6.8%, but it bounced back in the second and third quarters with a rate of 3.2% and 4.9% respec- tively. This bounce back can be at- the BANKING EXECUTIVE 26 ISSUE 147 MARCH 2021