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|K-shape recovery: A differentiated world|
The Quarterly Global Gutlook 2020 report of UOB Global Economics and Markets Research just released a few days ago forecasts that the global economy will remain on a recovery path even as COVID-19 cases continue to rise globally with nearly one million deaths. However, this recovery is not even, and instead, it is much like a stylised “K-shaped” recovery that shows the diverging paths of performance between economies, industries/sectors, and individuals.
2020 is still a recession year but judging from the overall better-than-expected economic data versus the trough in March/April, the pessimism a few months ago has given way to a less bad outlook. But the signs of stabilisation in the global economy cannot be taken for granted as the recovery path remains highly uncertain and dependent on risks of any resurgent wave of COVID-19 outbreak while the fiscal stimulus “cliff” in the fourth quarter is another risk unless governments extend their help measures to business and households.
A game-changer for the outlook is the COVID-19 vaccine development where there is good progress and the report's base case is for an effective vaccine by mid-2021, although this is still a possibility of failure.
The world's economy at the end of 2020 will see two familiar events in the spotlight: Brexit transition negotiations between the UK and Europe and the US presidential elections on 3 November. The outlook for the Brexit talks is not favourable but the impact is likely to be mostly limited within the UK and EU. In comparison, the US election is seen to be of greater impact for the US and the global economy.
According to UOB's report, despite the US election results, one thing that will not change post-US elections is the continued deterioration of US-China relations. Even with a change of a president, it will only change the style of negotiation, not the direction as US lawmakers have a unified view on China.