Perspectives

After a most difficult year, cautiously hopeful for 2021

st  
Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
2
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  
The bank  
for a changing  
world  
st  
Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
3
cing and administrative closures. Another important unknown is the  
reaction of financial markets should central banks gradually shift their  
guidance in reaction to a sustained increase in GDP. Finally, there is the  
important question to which extent changes in behaviour observed this  
year could become permanent. This unknown is particularly relevant  
at the sector level. One can think of how working from home will in-  
fluence the need for office space, how online shopping will impact the  
demand for retail shopping space, how video streaming will weigh on  
visits to cinemas, theatres or stadiums and how video conferencing can  
have repercussions on business travel.  
The bank  
for a changing  
world  
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