Macroeconomics: COVID-19 second wave versus a vaccine

The easing of COVID-19 restrictions in Q3 this year saw GDP in the major developed countries reclaim around 80% of the decline they reported in the first half of the year. Output was still 3-5% below pre-COVID-19 levels though, and the pace of recovery slowed significantly towards the end of the Northern Hemisphere summer. A subsequent resurgence of the virus during a second wave of cases in Europe has led to new restrictions on economic activity being reimposed in the region. The restrictions are likely to lead to a stumble in growth in those countries, such as France, most impacted by the second wave of COVID-19.

But whilst near term pessimism has returned, the recent release of test results on a new vaccine being developed by Pfizer, and its likely roll-out next month, has had a euphoric effect on equity markets, and raised the likelihood of stronger growth around the world in 2021 than was previously expected.

Roskill View

Roskill’s view has long been that, as and when the virus is controlled, economic activity can rebound quickly. The Chinese economy has already amply demonstrated this. GDP in Q3 in the country was up 4.9% y-o-y, not far off its pre-COVID-19 trend. Roskill is somewhat sanguine about underlying growth in China next year as the surge in investment in the country seen over recent months is likely to slow. However, this largely represents a “business as usual” case.

Forecasting GDP in the rest of the world has been much more problematic. Roskill’s base case, of a 3.9% decline in global GDP this year followed by a rise of 5.7% in 2021, remains unchanged but we see an increasing range of uncertainty in both directions around our forecast, given the competing forces pulling in different directions. Traded metals markets have recently been as bullish as equity markets, with the bell-weather copper price getting close to $7,000/t, up almost 50% from its late-March low. Recent days have also seen a re-firming in steel raw materials prices. This recovery is far from secure and not yet consistent across metals markets, but we are simultaneously starting to see a pick-up in investment interest. 2021 looks like being a re-set year as (and if) President-elect Biden enters office, and the mining industry returns to reassessing its longer-term plans.

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This article was written by Neal Brewster. Please get in touch below if you wish to discuss further:

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