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Animated Map: An Economic Forecast for the COVID-19 Recovery (2020-21)

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Animation: An Economic Forecast for the COVID-19 Recovery (2020-21)

Economic Forecast

This Markets in a Minute Chart is available as a poster.

COVID-19 Recovery: A Global Economic Forecast

As governments enact COVID-19 containment measures, economies around the world have slowed to a crawl. Many people find themselves out of work, and businesses are struggling to stay afloat amid strict regulations and plummeting demand.

However, while current economic conditions are bleak, some forecasts for the upcoming recovery provide room for investor optimism. According to the most recent forecast from the International Monetary Fund (IMF), it’s projected that the global economy will contract by 3% in 2020, followed by 5.8% growth in 2021.

In today’s Markets in a Minute from New York Life Investments, we take a look at the country-level economic forecast to highlight which areas may recover the fastest.

Emerging from The Great Lockdown

Given the numerous uncertainties COVID-19 brings, preparing an economic forecast was no easy task. The IMF’s most recent projections assume that the pandemic fades in the second half of 2020, containment efforts are gradually unwound, and governments provide policy support.

With this in mind, which countries are expected to see the strongest recoveries? Below is the full country-level forecast, sorted by projected real GDP growth in 2021.

Real GDP, Annual Percentage Change
2019 Actual, 2020-2021 Projected

Jurisdiction20192020P2021P
Libya9.9–58.780.7
Macao SAR–4.7–29.632.0
Palau0.5–11.914.4
Maldives5.7–8.113.2
Aruba0.4–13.712.1
Bangladesh7.92.09.5
China6.11.29.2
Malaysia4.3–1.79.0
Côte d'Ivoire6.92.78.7
St. Kitts and Nevis2.9–8.18.5
Djibouti7.51.08.5
Latvia2.2–8.68.3
Lithuania3.9–8.18.2
Indonesia5.00.58.2
Niger5.81.08.1
Mongolia5.1–1.08.0
Albania2.2–5.08.0
Antigua and Barbuda5.3–10.08.0
Kyrgyz Republic4.5–4.08.0
Seychelles3.9–10.88.0
Estonia4.3–7.57.9
Philippines5.90.67.6
Belize0.3–12.07.6
Guinea5.62.97.6
Czech Republic2.6–6.57.5
Myanmar6.51.87.5
Kosovo4.0–5.07.5
Serbia4.2–3.07.5
India4.21.97.4
Iraq3.9–4.77.2
Barbados–0.1–7.67.1
Malta4.4–2.87.0
Fiji0.5–5.87.0
Vietnam7.02.77.0
North Macedonia3.6–4.07.0
Uzbekistan5.61.87.0
St. Lucia1.7–8.56.9
Botswana3.0–5.46.8
The Bahamas1.8–8.36.7
Rwanda10.13.56.7
Montenegro3.6–9.06.5
The Gambia6.02.56.5
Turkmenistan6.31.86.4
Ireland5.5–6.86.3
Guyana4.752.86.3
Algeria0.7–5.26.2
Australia1.8–6.76.1
Cambodia7.0–1.66.1
Thailand2.4–6.76.1
Grenada3.1–8.06.1
Yemen2.1–3.06.1
Chad3.0–0.26.1
Kenya5.61.06.1
Denmark2.4–6.56.0
Iceland1.9–7.26.0
Bulgaria3.4–4.06.0
Benin6.44.56.0
New Zealand2.2–7.25.9
Eritrea3.80.15.9
Ghana6.11.55.9
Mauritius3.5–6.85.9
Burkina Faso5.72.05.8
Cyprus3.2–6.55.6
Lao P.D.R.4.70.75.6
Guatemala3.6–2.05.5
Tajikistan7.51.05.5
Cabo Verde5.5–4.05.5
São Tomé and Príncipe1.3–6.05.5
Senegal5.33.05.5
Slovenia2.4–8.05.4
San Marino1.1–12.25.4
St. Vincent and the Grenadines0.4–4.55.4
Chile1.1–4.55.3
Germany0.6–7.05.2
Sweden1.2–6.85.2
Peru2.2–4.55.2
Greece1.9–10.05.1
Lesotho1.2–5.25.1
Portugal2.2–8.05.0
Slovak Republic2.3–6.25.0
Israel3.5–6.35.0
Nepal7.12.55.0
Turkey0.9–5.05.0
Uruguay0.2–3.05.0
Qatar0.1–4.35.0
Madagascar4.80.45.0
Vanuatu2.9–3.34.9
Croatia2.9–9.04.9
Suriname2.3–4.94.9
Italy0.3–9.14.8
Luxembourg2.3–4.94.8
Armenia7.6–1.54.8
Morocco2.2–3.74.8
United States2.3–5.94.7
Mozambique2.22.24.7
Belgium1.4–6.94.6
Tanzania6.32.04.6
France1.3–7.24.5
Austria1.6–7.04.5
El Salvador2.4–5.44.5
Afghanistan3.0–3.04.5
Argentina–2.2–5.74.4
Spain2.0–8.04.3
Ethiopia9.03.24.3
Uganda4.93.54.3
Canada1.6–6.24.2
Sri Lanka2.3–0.54.2
Hungary4.9–3.14.2
Poland4.1–4.64.2
Mauritania5.9–2.04.2
Burundi1.8–5.54.2
Moldova3.6–3.04.1
Honduras2.7–2.44.1
Kazakhstan4.5–2.54.1
Tunisia1.0–4.34.1
Cameroon3.7–1.24.1
Mali5.11.54.1
United Kingdom1.4–6.54.0
Dominican Republic5.1–1.04.0
Panama3.0–2.04.0
Paraguay0.2–1.04.0
Central African Republic3.01.04.0
Liberia–2.5–2.54.0
Sierra Leone5.1–2.34.0
South Africa0.2–5.84.0
Togo5.31.04.0
Hong Kong SAR–1.2–4.83.9
Romania4.1–5.03.9
Ecuador0.1–6.33.9
Switzerland0.9–6.03.8
Solomon Islands1.2–2.13.8
Timor-Leste3.1–3.03.8
Colombia3.3–2.43.7
Jordan2.0–3.73.7
Ukraine3.2–7.73.6
Gabon3.4–1.23.6
Taiwan Province of China2.7–4.03.5
Brunei Darussalam3.91.33.5
Tuvalu6.0–1.03.5
Belarus1.2–6.03.5
Bosnia and Herzegovina2.7–5.03.5
Russia1.3–5.53.5
Jamaica1.0–5.63.5
Democratic Republic of the Congo4.4–2.23.5
Korea2.0–1.23.4
Dominica9.2–4.73.4
Kuwait0.7–1.13.4
Republic of Congo–0.9–2.33.4
United Arab Emirates1.3–3.53.3
Marshall Islands2.4–0.23.2
Namibia–1.4–2.53.2
South Sudan11.34.93.2
Finland1.0–6.03.1
Iran–7.6–6.03.1
Comoros1.9–1.23.1
Netherlands1.8–7.53.0
Japan0.7–5.23.0
Singapore0.7–3.53.0
Costa Rica2.1–3.33.0
Mexico–0.1–6.63.0
Bahrain1.8–3.63.0
Georgia5.1–4.03.0
Oman0.5–2.83.0
Guinea-Bissau4.6–1.53.0
Norway1.2–6.32.9
Bhutan5.32.72.9
Papua New Guinea5.0–1.02.9
Bolivia2.8–2.92.9
Brazil1.1–5.32.9
Saudi Arabia0.3–2.32.9
Somalia2.9–2.52.9
Egypt5.62.02.8
Trinidad and Tobago–0.0–4.52.6
Angola–1.5–1.42.6
Malawi4.51.02.5
Zimbabwe–8.3–7.42.5
Nigeria2.2–3.42.4
Equatorial Guinea–6.1–5.52.3
Zambia1.5–3.52.3
Kiribati2.30.02.2
Pakistan3.3–1.52.0
Eswatini1.0–0.91.8
Puerto Rico2.0–6.01.5
Micronesia1.2–0.41.4
Nauru1.0–1.71.3
Tonga–0.1–1.21.2
Haiti–1.2–4.01.2
Azerbaijan2.3–2.20.7
Samoa3.5–3.70.5
Nicaragua–3.9–6.00.0
Sudan–2.5–7.2–3.0
Venezuela–35.0–15.0–5.0
Lebanon–6.5–12.0No data
SyriaNo dataNo dataNo data

Libya is forecast to have the highest growth in 2021, as well as the deepest contraction in 2020. However, the IMF notes the reliability of this data is low given Libya is currently facing a civil war and weak capacity.

Emerging and developing Asia is expected to have a strong recovery, with China and India predicted to see 2021 growth rates of 9.2% and 7.4% respectively. For China, this is a welcome change after its first quarter GDP contracted by 6.8%, the first decline since at least 1992.

The IMF predicts the U.S. will see GDP growth of 4.7% in 2021, which is slightly higher than the 4.5% average for advanced economies. Separately, the U.S. Federal Reserve also believes the economy will recover relatively quickly given the country entered the pandemic on strong economic footing.

There is every reason to believe that the economic rebound, when it comes, can be robust.

Jerome Powell, U.S. Federal Reserve Chairman

In the meantime, the Federal Reserve says it is committed to providing financing programs and maintaining low interest rates to help boost the economy.

Spotting Opportunity

As the pandemic subsides, broad-based stimulus will be critical for economic recoveries. Clear communication on the state of the pandemic, and the decline of new infections, will also help instill consumer confidence.

Investors can consider these factors, as well as the IMF’s forecast, as they look to diversify geographically. This allows investors to take advantage of areas with the highest potential growth.

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Markets in a Minute

How Did Investors React to the COVID-19 Outbreak?

During the COVID-19 outbreak, investors faced a remarkable period of volatility. We analyze fund flow data to see what types of assets they preferred.

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How Did Investors React to the COVID-19 Outbreak?

Throughout Q1, investors faced a truly remarkable period of volatility.

For starters, the S&P 500 fell by 30% from its record high in February, achieving the feat in just 22 trading days—the fastest such decline in history. Outside of capital markets, economic damage was abundant. Lockdown orders left entire industries struggling to survive, and unemployment claims across America skyrocketed.

In today’s Markets in a Minute chart from New York Life Investments, we analyze Q1 fund flow data to find out how U.S. investors navigated these highly uncertain times.

Seeking Shelter

A key theme of Q1 2020 was risk aversion, as evidenced by the $670B net inflow to money markets. Money market securities are an ideal investment during volatile periods, thanks to their relatively low risk and high liquidity.

Also of significance was the flow differential between the two main types of investment vehicles. By the end of March, net flows to mutual funds reached $400B, compared to just $58B to ETFs. This difference was fueled by the aforementioned demand for money markets, as mutual funds are the predominant vehicle used to access this asset class.

Below, we break down net flows by asset class, between ETFs and mutual funds:

Asset Class ETF FlowsMutual Funds FlowsNet Flows (Q1 2020)
Total+$58B+$400B+$458B
Money Market--+$670B+670B
International Equity-$1B+$21B+$20B
Commodities+$9B-$1B+$8B
Alternatives+$7B-$7B-$0.1B
Sector Equity-$4B-$7B-$11B
Municipal Bonds+$1B-$21B-$20B
U.S. Equity+$37B-$59B-$22B
Allocation-$0.2B-$33B-$33B
Taxable Bonds+$9B-$163B-$154B

Source: New York Life Investments (March 2020)

Taxable bonds fared the worst in terms of net flows, with -$154B pulled from both corporates and governments. This may come as a surprise, as these investments are generally considered to be safer than equities—so why were they sold off in such large amounts?

One trigger was the economic shock of COVID-19, which brought the creditworthiness of many U.S. companies into question. This issue is likely exacerbated by the record levels of corporate debt amassed prior to the disease hitting American shores.

The U.S. government’s rapidly rising fiscal deficit may be another trigger. If the supply of government debt were to overwhelm markets, the value of government bonds would fall, and investors would lose capital. It’s estimated that $4.5T will need to be borrowed to fund the government’s numerous COVID-19 support programs.

U.S. Equities Divided

Although U.S. equities saw net outflows in Q1, a deeper dive into the flow data uncovers a much more nuanced story. For example, with the exception of February, U.S. equity ETFs and mutual funds saw opposing net flows.

Vehicle TypeJanuary FlowsFebruary FlowsMarch Flows
Total-$14B-$13B+$5B
ETFs+$14B-$2B+$25B
Mutual Funds-$28B-$11B-$20B

Source: New York Life Investments (March 2020)

Overall, ETFs saw net inflows of $37B, while mutual funds saw net outflows of $59B. These findings suggest a strong investor preference for passively-managed products. Breaking down U.S. equity flows by investment style highlights another inequality.

Investment StyleNet Flows (Q1 2020)
Blend+$27B
Growth-$35B
Value-$14B

Source: New York Life Investments (March 2020)

Growth strategies prioritize capital appreciation, while value strategies seek stocks that pay dividends and are trading at a discount. Blend strategies, the only style to attract net inflows in Q1, offer investors a mix of both.

Betting on Oil

Within commodities, investors added $7B to precious metals funds. These inflows were not a surprise, given gold and silver’s status as safe-haven assets.

The only other subcategory to attract net inflows was energy—investors bet on a rise in the price of oil, adding $3B to energy funds over the quarter. Of this amount, $2B was added in March. Since then, oil prices have continued to slide (even falling below zero) due to plummeting demand and oversupply.

What’s in Store for the Rest of 2020?

Volatility is likely to continue throughout 2020. Uncertainty surrounding the duration of the pandemic remains, with countries such as South Korea and China reporting a resurgence in cases. Further questions arise as central banks, including the U.S. Federal Reserve, continue to provide unprecedented levels of stimulus.

Nevertheless, sticking to a long-term investment plan, and avoiding common psychological pitfalls, can help investors prepare for whatever comes next.

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Markets in a Minute

Dividend Stocks: Driving Value in Volatile Markets

Dividend investing can provide stability during market volatility, providing attractive sources of income when markets take a turn.

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Dividend Stocks: Driving Value in Volatile Markets

When markets take a turn for the worse, dividends often can provide a buffer against the drop.

Year after year, dividend-paying companies put money into shareholders’ pockets—and may offer much needed stability during periods of high volatility. Dividend investing can help offset unexpected downturns by generating a key source of income.

In today’s Markets in a Minute chart from New York Life Investments, we explore how dividends can help lower risk within investors portfolios when markets enter turbulent territory.

The Appeal of Dividends

Over the last two decades, dividend-paying companies have outperformed the S&P 500 in 12 of 20 years, including in all five years where the S&P 500 finished the year in negative territory.

Year S&P 500 Total Return (TR)Dividend-Paying Stocks* Total Return (TR)Top performer
2000-9.1%10.1%Dividends
2001-11.9%10.8%Dividends
2002-22.1%-9.9%Dividends
200328.7%25.4%S&P 500
200410.9%15.5%Dividends
20054.9%3.7%S&P 500
200615.8%17.3%Dividends
20075.5%-2.1%S&P 500
2008-37.0%-21.9%Dividends
200926.5%26.6%Dividends
201015.1%19.4%Dividends
20112.1%8.3%Dividends
201216.0%16.9%Dividends
201332.4%32.3%S&P 500
201413.7%15.8%Dividends
20151.4%0.9%S&P 500
201612.0%11.8%S&P 500
201721.8%21.7%S&P 500
2018-4.4%-2.7%Dividends
201931.5%28.0%S&P 500

*Dividend stocks represented by S&P 500 Dividend Aristocrat Index. Past performance is no guarantee of future results.

What sets dividend-paying companies—and especially those that continually grow their dividends—apart from the herd?

Wide Moats: A Competitive Advantage

While dividend growth signals company strength, it can also indicate that the company has an economic moat—a sustainable competitive advantage. This means two things: the company can raise prices, and keep competitors at bay. For shareholders, this signals a stronger likelihood of profitability, and more sustainable dividend payouts.

Reinvested Income Fuel Returns

Between 1926 and 2018, reinvested dividend income accounted for 33% of total equity returns in the S&P 500.

While capital appreciation is an undisputed factor in building wealth, it’s easy to forget the sheer force of dividends.

Strong Balance Sheet

A company’s ability to pay steady dividends is critical. Dividends are drawn from a company’s cash balance, which must be sufficient during both strong and lackluster financial conditions.

Ultimately, this cash allocation represents a conservative and disciplined approach to the company balance sheet—demonstrating a commitment to shareholders.

“At the end of the day, dividends are not being paid with margins; dividends are paid with earnings per share.”

—Joe Kaeser

Cushion Against a Shock

When markets turn sour, income from dividend payouts can offer a key lifeline.

The ability for dividend payers to generate superior risk-adjusted returns is demonstrated across their Sharpe ratios, with a higher number indicating a more attractive risk/return profile.

For instance, between 1990-2018, The S&P 500 Dividend Aristocrat Index—a basket of stocks that have paid consistent, increasing, dividends over 25 years— averaged a Sharpe ratio of 0.7 compared to the S&P 500’s 0.4.

Alongside this, a number of dividend payers have outperformed the S&P 500 in every down year since 2000.

YearS&P 500 Total Return (TR)Dividend-Paying Stocks* Total Return (TR)
2000-9.1%10.1%
2001-11.9%10.8%
2002-22.1%-9.9%
2008-37%-21.9%
2018-4.4%-2.7%
Total Years Dividend-Paying Stocks (TR) Outperformed5

*Dividend stocks represented by S&P 500 Dividend Aristocrat Index. Past performance is no guarantee of future results.

Even during dismal years, dividend payers have shown notable returns.

A Powerful Tool in Today’s Market

As COVID-19 continues to drive further volatility in the market, dividend investing may offer investors both stability and strong income to help weather the storm.

Of course, not all dividend-payers can be expected to be winners. Careful analysis of financial statements and management track records is required to identify companies with the strongest fundamentals.

While dividend payers can help provide a shield in volatile markets, they double as a significant driver of wealth creation over time.

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