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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

Infrastructure Megatrends: The Clean Energy Transition

Governments are keen to make the transition to clean energy, but what will it take to get there? In this chart, we examine two scenarios through 2050.

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Infrastructure Megatrends: The Clean Energy Transition

Demand for clean energy is ramping up as a majority of countries target 2050 as the year to achieve net-zero emissions. But how much will this all cost?

According to the International Renewable Energy Agency (IRENA), upwards of $100 trillion is needed to build a system capable of keeping global temperatures from rising above 2C° (3.6F°).

In this Markets in a Minute chart from New York Life Investments, we take a closer look at the outcomes of such a massive endeavor.

Investment Required to Reshape Global Energy Markets

The IRENA believes there are two scenarios for how the clean energy transition plays out by 2050.

Their first scenario involves a total investment of $95 trillion (112% of global GDP in 2020) and is based on current policies and targets. Despite the lofty amount, this scenario is expected to fall short in achieving the goals set by the Paris Agreement.

Their second scenario involves a more ambitious set of targets, as well as a 16% larger investment of $110 trillion. Thanks to economies of scale, this scenario will reduce carbon emissions much further and keep the global temperature rise below 2C° (3.6F°).

The estimates behind these two scenarios are outlined in the table below.

 Current SituationScenario 1 ($95T in investment)Scenario 2 ($110T in investment)
Renewable Share in Electricity Generation26%55%86%
Electrification Share of Final Energy20%30%49%
Energy-Related CO2 Emissions (gigatonnes)34gt 33gt
9.5gt

How Do We Get There?

For scenario 2 to become reality, significant changes would need to be made across the entire economy.

For starters, the IRENA estimates that 1.1 billion electric vehicles will be on the road by 2050, up from 8 million in 2019. The resulting need for charging infrastructure is reflected by Scenario 2’s higher share of electrification (49% vs 30%).

Government subsidies around the world would also need to be adjusted, with much less money flowing to fossil fuels. The chart below provides a roadmap for these adjustments—on the left is the dollar value of subsidies, and on the right is each segment’s share of the total.

Government energy subsidies

Fossil fuel subsidies in the U.S. are facilitated through tax cuts, and are estimated to be worth around $20 billion per year. This may change very soon, as the Biden administration has signaled its intention to eliminate these subsidies as part of its 2021 tax plan.

With Great Change Comes Great Opportunity

The demand for clean energy is expected to kick-off a monumental transformation of the world’s infrastructure.

For investors, gaining exposure to this megatrend may combine attractive return potential with positive environmental impact. In fact, many listed companies in the utilities sector are establishing themselves as leaders in this regard.

Consider Enel, an Italian multinational with activities in Europe and the U.S. The firm has directed capital towards renewable energy since 2015 and is now the world’s largest player in renewables with 46GW of installed capacity across solar, wind, and hydro.

Further developments are planned, and Enel expects to grow its earnings (represented by EBITDA) at a compound annual growth rate (CAGR) of 5%-6% over the next decade.

To learn more about the opportunities surrounding clean energy, consider this infographic on the global sustainable recovery.

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Markets in a Minute

Can Foreign Currencies Act as an Inflation Hedge?

To determine if foreign currencies were a good inflation hedge, we looked at their performance relative to U.S. inflation over the last four decades.

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Inflation Hedge

This infographic is available as a poster.

Can Foreign Currencies Act as an Inflation Hedge?

Inflation is like corrosion. Initially, it can make investment returns less attractive. Over time, it can significantly eat away at an investment’s value. For U.S. investors looking for an inflation hedge, holding foreign currencies may be one option.

But just how effective are they at managing inflation risk? In this Markets in a Minute chart from New York Life Investments, we look at how the performance of foreign currencies compared to U.S. inflation rates over the last four decades.

How to Hedge Against Inflation

Inflation reduces the value of a dollar over time. To manage this risk, investors look for returns that are higher than the inflation rate. For example, a currency that appreciates 6% during 2% inflation may be considered a relatively good inflation hedge.

What makes a currency appreciate? A currency will perform well against the U.S. dollar if investors consider the issuing economy to be strong. This is because foreign investors will look to purchase investments in the applicable currency, driving up its demand.

Foreign Currency Appreciation vs. U.S. Inflation

Here is how the four largest non-U.S. reserve currencies have performed from 1981-2020. We measured a foreign currency’s appreciation against the U.S. dollar using annual exchange rates. U.S. inflation was measured by the percentage change in the average consumer price index for all urban consumers. Neither metric was seasonally adjusted.

YearAverage U.S. InflationEuropean euroChinese yuanJapanese yenBritish pound
20201.2%1.9%0.1%2.1%0.5%
20191.8%-5.6%-4.5%1.3%-4.7%
20182.4%4.4%2.2%1.5%3.5%
20172.1%2.0%-1.8%-3.2%-5.2%
20161.3%-0.2%-5.7%10.2%-12.8%
20150.1%-19.8%-2.0%-14.5%-7.9%
20141.6%0.1%-0.2%-8.3%5.1%
20131.5%3.2%2.6%-22.3%-1.4%
20122.1%-8.3%2.4%-0.2%-1.2%
20113.1%4.8%4.5%9.2%3.7%
20101.6%-5.1%0.9%6.3%-1.4%
2009-0.3%-5.7%1.7%9.4%-18.4%
20083.8%6.9%8.7%12.2%-8.0%
20072.9%8.4%4.6%-1.3%7.9%
20063.2%0.9%2.7%-5.6%1.3%
20053.4%0.1%1.0%-1.8%-0.7%
20042.7%9.0%0.0%6.7%10.8%
20032.3%16.5%0.0%7.4%8.1%
20021.6%5.3%0.0%-3.0%4.2%
20012.8%-3.1%0.0%-12.8%-5.3%
20003.4%-15.4%0.0%5.2%-6.7%
19992.2%N/A0.3%13.2%-2.5%
19981.5%N/A0.2%-8.2%1.2%
19972.3%N/A0.2%-11.3%4.7%
19962.9%N/A0.4%-15.8%-1.1%
19952.8%N/A3.1%8.0%3.0%
19942.6%N/A-49.5%8.0%2.0%
19933.0%N/A-4.7%12.4%-17.6%
19923.0%N/A-3.5%5.8%-0.1%
19914.2%N/A-11.3%7.2%-0.9%
19905.4%N/A-27.2%-5.0%8.2%
19894.8%N/A-1.0%-7.7%-8.7%
19884.1%N/A0.0%11.4%7.9%
19873.6%N/A-7.8%14.1%10.5%
19861.9%N/A-17.6%29.4%11.6%
19853.5%N/A-26.3%-0.4%-3.0%
19844.4%N/A-17.6%0.0%-13.4%
19833.2%N/A-4.4%4.6%-15.3%
19826.2%N/A-11.0%-12.9%-15.8%
198110.4%N/A--2.7%-14.8%

Note: The euro was created in 1999, which is why annual appreciation data against the U.S. dollar is not applicable prior to 2000. The Chinese yuan / U.S. dollar foreign exchange rate was not available for 1980, which is why annual appreciation for 1981 is unavailable.

The Best and Worst Inflation Hedges, Historically

Based on available data, here is the percentage of time each currency’s annual appreciation was greater than the U.S. inflation rate.

European euroChinese yuanJapanese yenBritish pound
43%18%48%33%

The Japanese yen acted as the best inflation hedge, with its annual appreciation beating U.S. inflation 48% of the time. Demand for the safe haven currency has historically been strong for three main reasons:

  • After the Japanese banking crisis of the late 1990s, the government introduced a number of policy measures. This helped Japan enter the global financial crisis with a relatively stable banking system.
  • Japan is the largest creditor nation, meaning the value of foreign assets held by Japanese investors is higher than the value of Japanese assets owned by foreign investors. In times of market uncertainty, the money of Japanese investors tends to return home—driving up demand for the yen.
  • To take advantage of near-zero interest rates in Japan, investors conduct “carry trades” where they borrow funds in Japan and lend or invest in countries where returns are higher. During turbulent markets, investors may unwind these trades, furthering demand for the yen.

The Chinese yuan has been the worst inflation hedge, with the yuan’s appreciation beating U.S. inflation only 18% of the time since 1982. This is perhaps not surprising, given that the yuan was pegged against the U.S. dollar in 1994 to keep the yuan low and make China’s exports competitive.

In 2005, China moved to a “managed float” system where the price of the yuan is allowed to fluctuate in a narrow band relative to a basket of foreign currencies. This shift led to the yuan appreciating against the U.S. dollar in some years.

The Risks of Currency as an Inflation Hedge

As the chart makes clear, investing in foreign currencies can be very volatile. Not only can currency depreciation lead to losses, there are additional factors for investors to consider such as geopolitical risks.

Of course, the effectiveness of foreign currencies as an inflation hedge depends on their attractiveness relative to the U.S. dollar. If a country is also affected by the factors causing U.S. inflation—such as an increase in the money supply—its currency could be negatively affected.

Given the uncertainties associated with this strategy, investors may want to consider foreign currencies alongside other asset classes to help manage inflation risk.

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