st
Eco Perspectives // 1 quarter 2021
economic-research.bnpparibas.com
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EDITORIAL
AFTER A MOST DIFFICULT YEAR, CAUTIOUSLY HOPEFUL FOR 2021
Until the very end, 2020 has been a difficult year, to say the least. However, there are reasons to be cautiously hopeful
about the economy in 2021. Vaccination should reduce the uncertainty about the economic outlook. Ongoing fiscal
and monetary support is also important. However, more than ever, caution is necessary in making forecasts. Reaching
herd immunity may take longer than expected and some of the economic consequences of the pandemic may only
manifest themselves over time.
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020 has been a difficult year, to say the least. The Covid-19 reces-
UNEASE ABOUT THE ‘KNOWN UNKNOWNS’
sion was completely unexpected, abrupt and deep. It has triggered a
huge effort from monetary and in particular fiscal policy to cushion the
impact on the financial situation of households and companies. 2020
was difficult until the very end with another wave of infections in the
US and several European countries, causing new restrictions. High fre-
Assessing the pace of growth in 2021 and beyond is challenging be-
cause some of the consequences of the pandemic may only manifest
themselves over time. This would mean that the economy could still
face headwinds even when the health situation would be considered
under control. A key unkown is the impact of ending income and liqui-
dity support measures to households and businesses. There is concern
that this could cause an increase in unemployment, as companies
which are financially fragile try to lower their cost base or close their
activities altogether. This implies that the pick-up in activity will need
to be sufficiently strong, in particular in sectors such as leisure and
hospitality which have been under huge stress due to social distan-
1
quency indicators such as the Google Mobility data – which are closely
correlated with household spending - show that the rebound after the
drop in November has come to a halt. This means that the new year
will start on a softer note than previously expected.
CAUTIOUSLY HOPEFUL
Nevertheless, there are reasons to be cautiously hopeful about the
economy in 2021. Vaccination has already started in some countries
and will gradually be extended to others. This should lower the risk
of disruptions due to waves of new infections and hence reduce the
uncertainty about the economic outlook. Consequently, the support
coming from fiscal and monetary policy should make itself felt more
clearly. However, more than ever, caution is necessary in making
forecasts. Reaching herd immunity may take longer than expected,
which would imply that infections-related uncertainty might
linger on. In addition, we should be mindful that the links between
final demand and its drivers -e.g. interest rates, income, company
earnings- are not rigid. Psychology plays a key role. For households,
unemployment expectations are an essential indicator to monitor.
After declining during the economic rebound in the third quarter, the
assessment by European households of the labour market outlook
has deteriorated again as of late. In the near term, this may act as
a drag on spending and boost precautionary savings. In addition,
savings have been increased as consumer choices were restricted by
the lockdown measures. Subsequently, as the outlook improves, this
should go in reverse and households may very well tap into the savings
accumulated during lockdown. For companies, what matters more than
anything is visibility stretching far enough into the future. It will drive
their decisions in terms of investments and recruitment. The latest
European Commission survey on investment intentions shows only a
small increase is planned for next year. The aggregate picture masks a
high degree of heterogeneity. Business sentiment in the manufacturing
sector has been holding up well in the euro area whereas services are
suffering from the restrictions introduced in recent weeks. Companies
that have seen a big increase in their debt load due to a drop in
turnover during lockdown may prioritise deleveraging over investing.
On the other hand, profitable businesses with a good balance sheet
and an improving demand outlook may step up their investments,
which would have favourable spillover effects on other sectors.
RETAIL AND RECREATION MOBILITY
(
7-day moving average, %)
10
0
-
-
10
20
-30
-40
-
-
-
-
-
50
60
70
80
90
France
Italy
Germany
Spain
Belgium
-100
5/02/20
1
15/04/20
15/06/20
15/08/20
15/10/20
15/12/20
(
7-day moving average, %)
10
0
-
-
-
-
-
-
-
-
-
10
20
30
40
50
60
70
80
90
United Kingdom
15/04/20 15/06/20
United States
15/08/20 15/10/20
Japan
-
100
15/02/20
1
Google Mobility Reports show how visits and length of stay at different places change
compared to a baseline. The baseline is the median value, for the corresponding day of the
week, during the 5-week period Jan 3–Feb 6, 2020. A figure of negative 30% indicates that
traffic was down 30% compared to a baseline. The reports show trends over several weeks
with the most recent data representing approximately 2-3 days ago—this is how long it
takes to produce the reports. In order to smooth the series, we use a seven-day moving
average of the raw data in the Google Mobility Reports. Source: Google.
15/12/20
SOURCE: GOOGLE (LAST UPDATE 13/12/2020), BNP PARIBAS
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