​Positive Economic Indicators of Global Business Growth in 2021 | reesmarxGLOBAL
Ray Tomasco

Ray Tomasco

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​Positive Economic Indicators of Global Business Growth in 2021

In January 2021, the United Nations warned that the world economy was on a “cliff hanger”.The U.N. stated that economies worldwide were critically impacted by the Covid-19 health emergency.And while rollout of various vaccines for Covid-19 have commenced (and accelerated) in every nation, there would be long-term economical affects felt for years.

While economists find themselves in a difficult position unable to predict global economic recovery because of unknown variables about the pandemic, there is still some significant optimism. The United Nations reported that the global economy could make a measurable recovery of about 4.7% in 2021.A growth rate that could leave businesses recouping much of the 2020 profitability losses.

How much did the global economy shrink in 2020? Inside the United Nation’s World Economic Situation and Prospects (WESP) report, the cumulative impact of the coronavirus was a contraction of about 4.3%. The U.N. economic council states that the impact of Covid-19 was higher than the Great Depression. And the Great Recession of 2009 only resulted in an economic contraction of 1.7%.

The overall economic impact of the first global pandemic in more than 100 years was felt in every country, and across every sector. The U.N. also reported that:

·         China was the only country to register economic growth in 2020. It was a small 2.4% expansion of the GDP however China is forecast to grow by 7.2% in 2021.

·         The U.S. economy will grow 3.4% in 2021 (it shrank 3.9% in 2020).

·         The Japanese economy will grow 3% (after contracting 5.4% in 2020).

·         European countries will grow 5% in 2021 (after shrinking 7.4% in 2020).

Developing countries (according to the U.N. report) saw less severe economic contraction rates, with 2.5% drop in GDP.However, for developing nations, the U.N. is forecasting a rebound growth of 5.7% in 2021.

The Strategy of Increasing Money Supply to Stabilize Investment and Economic Activity

What impact did economic stimulus funds have on economic stability and recovery? In the U.N. WESP report, the U.N. discussed the estimated $12.7 trillion in global fiscal stimulus.The top three countries that provided domestic stimulus funds to citizens and industries were Germany, Japan and the United States.The three countries represented more than 50% of all economic stimulus support in 2020.

The strategies behind the stimulus funding were to stabilize not just domestic but the global economy. And to prevent a ‘drying up’ of liquidity. And the U.N. reported that objective was met.But the secondary goal of preventing bankruptcies and stimulating domestic and foreign investment fell short.

Major economies saw a large increase in money supply.In the United States, there was an increase in money supply of 23% during the pandemic thus far (according to the U.N. report). The increase in money supply had a tremendous impact on economic activity in Germany, Japan and the United States.Lowered interest rates helped stimulate investment (even during the adversities of Covid-19).

The efficacy of the increase in money supply was also seen by average stock market increases throughout 2020. It was also demonstrated by the relatively flat inflation rates in countries that applied the economic response measure. Countries that allowed the supply of money to fall in 2020 sustained significant declines in economic activity.And deflation of prices from consumer goods to commodities, which puts substantial pressure on all business sectors.

What is a ‘U’ Shaped Economic Recovery?

A U-shaped economic recovery is anticipated for many countries.In an April 2020 survey of global CEOs by YPO (association of chief executives), more than 60% of leadership were planning for a U-shaped economic recovery.In another recent survey from Reuters of economists, 55% said that they anticipated a U-shaped recovery as well.With slow recovery throughout 2021.

When a U-shaped recovery happens, the output, investment, manufacturing and growth metrics remain suppressed.The period of contraction lasts between 12 to 24 months.That is the bottom of the U-shape.However, economic recovery after that phase is rapid.And almost always straight back up to where it was before the impact of the event.Economists have tracked this behavior after World Wars, terrorist events (such as 9/11) and now the Covid-19 coronavirus pandemic.

In 2009, Simon Johnson, the former Chief Economist for the International Monetary Fund, described a U-shaped recession and economic recovery as a bathtub.Johnson stated: “You go in. You stay in. The sides are slippery. You know, maybe there ‘s some bumpy stuff in the bottom, but you don’t come out of the bathtub for a long time”.

What is true about a U-shaped economic recovery is that while it takes time, many countries may see high growth that follows immediately afterward. Economies are changing and diversifying because of the impact of the pandemic. Improvements in supply chains to insulate from future disruptions will help make many countries more resilient in the process to future events. And that means a stronger long-term performance for many G20 nations.

Countries With “V” Shaped Recovery a Prime Target for Global Expansion

A V-shaped economic recovery happens less frequently after an economic recession. It is characterized by a fast and sustained recovery after a sharp economic decline. It is the best and most favorable type of economic recovery, because it allows the business sector to ‘bounce back’ to pre-recessionary levels of production and activity.

The United States experienced a V-shaped economic recovery after the recessions of 1920 and 1953. However, economists are predicting a U-shaped recovery for America following the economic impact of the Covid-19 health emergency.

Countries that are already showing signs of a V-shaped post-pandemic economic recovery include:

·         China

·         India

·         France

·         LATAM

China was the epicenter of the global pandemic, and the first country to take domestic healthcare and economic measures to offset the impact of Covid-19. However, China was criticized for the extreme lockdown measures the country took from the beginning of the outbreak. What was a short term coordinated and massive effort to isolate the virus allowed China to save lives, and quickly recovery manufacturing, production and shipping activities?

The economy in India is projected to grow by 11% real GDP in 2021 to 2022. India developed phenomenally successful policies that reduced the impact on economic growth by the Covid-19 health emergency. Management of the lockdown of populations and businesses was stricter than seen in other nations.

However, like China, the hardline approach seems to have allowed India to quickly isolate and control the spread of the virus and minimize economic impact.

The successful distribution of Covid-19 vaccines remains the biggest unknown and determinant factor that will show which nations emerge fastest from the pandemic recessionary conditions.

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