The Banking Executive Magazine - March 2021

tributed to several strategies, one of them is the reprioritization of macro- economic objectives, and a focus on enhancing exports, connected to the high demand for medical supplies, equipment and electronics. Factors also include a great deal of invest- ment in infrastructure and real estate. Despite hitting a low in 2020, several experts predict China’s GDP growth will reach 8 to 9 percent in 20201. US-China Relations: Old vs New Administration China’s economic pre-pandemic normalization is strongly linked to its tension with the U.S. The US-China trade war was launched back in 2018 with President Trump, when the US trade deficit widened. How- ever, because of the pandemic, there has not been much improvement from the trade war’s retaliatory tariffs. In 2019, the US trade deficit with China decreased by 8.5%, and then increased again by 5.4% in 2020. Currently, it accounts for about 37% of the US total trade deficit. Should China achieve 8% of growth this year, with predicted currency appre- ciation and domestic inflation, IMF forecasts that the size of China’s economy relative to the US could be higher than 75%. So, it is expected that newly elect president Joe Biden’s stance on China will remain tough. Biden has previously explained that he will not cancel the Trump’s ad- ministrational additional tarrifs on China. Also, analysts expect that Biden might seek collaboration the U.S.’s well known allies to jointly contain China. USA In 2020, the United States faced a truly tough year. Even though its eco- nomic contraction of 4.3% tracks with that of the rest of the world (4.4%), the U.S. faced one of the worst health scenarios as it had over 20% of world-wide Covid-19 deaths even though it accounts for roughly 4.25% of world population. Prior to the pandemic, Trump’s economy was faring quite spectacularly, with un- employment reaching a 50-year low and inflation below the target of 2%, but it soon came crashing. During the second quarter of the year, real GDP sharply fell by a tremendous 31.4% while unemployment levels reached 14.7%. But what is perhaps most astonishing is the financial mar- kets’ nonalignment with the eco- nomic reality. Even though U.S. stocks dipped during the beginning of the pandemic, they have now peaked and are estimated to be a record-breaking 83.8% overvalued. In comparison, stocks were only 49% overvalued during the Tech Bubble in 2000. Yet, the U.S. econ- omy is still expected to grow by 3.5% in 2021, which is 0.5% lower than what was previously projected. Nonetheless, the following risks make it clear that while U.S. GDP might fully recover, welfare will take a longer time to do so: • The U.S.A. is projected to have a K-shaped recovery. Meaning that like the letter “K” that diverges in its strokes, so will the fortune of dif- ferent classes in the U.S. economy. The rich are projected to get even richer while the poor still poorer. • The “K” economic recovery will also prevalent be in the job market. Sectors such as banking, telecom- munications, and real estate now offer wages at levels 50% higher than before the pandemic while jobs in the leisure and hospitality sectors suffer from lower wages and a loss of 25% of employment. • Increased divide between the U.S. population’s political affiliations might cause serious social skir- mishes, not unlike the recent Trumpian storming of the capitol • Potentially dangerous escalations in the conflicts between the U.S. and North Korea, Iran, and China. U.A.E. 2020 has been a mixed year for the United Arab Emirates. With 30% of its GDP coming from gas and oil ex- tracts, there is no wonder that the commodity’s fall in price had dam- ISSUE 147 MARCH 2021 the BANKING EXECUTIVE 27