Based on the Outlook Report 2021 by JP Morgan bank, we find that various regions across the Globe has dealt with coronavirus differently and these differences have greatly impacted the global healing process. Below, we discuss how regions, more specifically Asia, Europe, Latin America, and the United States have contained the coronavirus.
Asia: Relatively successful virus containment and adequate policy response
China and most parts of East Asia are currently benefitting from a ‘first in, first out’ effective and dynamic containment of the coronavirus. China has been the first to see the activity and growth bottom in the first quarter of 2020. China’s rebound was led by the industrial sectors, backed by strong exports. China’s recovery has recently widened to consumers and services. In fact, tourism, as well as domestic travel, are well on their way to normalization even without the COVID-19 vaccines. This recovery is expected to be self-sustaining.
As for other parts of East Asia, we find that South Korea and Taiwan have also recovered relatively early due to the strong global demand for Technology products. It is important to point out though, that these countries’ massive dependence on tech products may put them at risks if the demand of tech products falls. As for Japan, the country experiences a smaller domestic shock from the pandemic, however, it is still struggling with deflationary pressures, weak demand because of consumption tax hikes and strong currency.
Outlook 2021 by JP Morgan bank further reports India, Indonesia and the Philippines to have struggled to find a balance in order to contain the virus with the need for economic growth. These economies might experience a full recovery with a globally available vaccine.
Europe: Poor virus containment and modest policy response
According to Outlook 2021, “Europe has fallen marginally behind as a resurgence in new cases has slowed the recovery’s momentum from its previously robust pace. Recent weeks have brought a more rapid escalation of new infections than authorities were expecting. Some countries (including Germany, France and the United Kingdom) have responded with fresh lockdown measures.”
We find that these lockdowns are no longer as severe as they were in the spring and the focus on restricting leisure and hospitality sectors implies that the level of risk will vary significantly. For instance, the value-added from restaurants/ hotels and arts/ leisure/ entertainment is almost 4% of GDP on average. However, these sectors account for almost 8% of GDP in Spain and less than 3% in Germany.
As for Europe’s weaker economies like Turkey, Spain, Italy and Greece that rely heavily on tourism, was decimated by springtime travel restrictions that have never fully lifted. Indeed, the slow recovery if travel-dependent, high-contact service industries is why European countries dominate the list of economies that are forecasted to be smaller in 2022 than in 2019. Of the nine major advanced countries forecasted by the International Monetary Fund (IMF) to meet this unwanted criterion, seven are European. On the policy side, the European Recovery Fund represents an unprecedented level of political commitment to coordinated fiscal policy. However, its ¨750 billion price tag is probably insufficient to generate a return to pre-pandemic GDP levels in 2021, especially in light of new restrictions. Recent vaccine developments are encouraging, but probably insufficient to make Europe a preferred region for investment.
Latin America: Poor virus containment and uneven policy response
Latin America is barely experiencing recovery. This region was unprepared to confront the global crisis due to its highly informal labour markets and inadequate public health systems. The coronavirus pandemic hit hard in densely populated and poor areas. Hence, with the rapid spread of the virus, authorities were forced to impose mobility restrictions, and hence ending up effectively paralyzing productive activity threatened economic catastrophe.
While we expect Latin America to start experiencing economic growth in 2021, its potential is still limited. Brazil’s gradual withdrawal of fiscal stimulus and rising public debt burden, Mexico’s policy uncertainty and lack of significant fiscal relief measures, as well as Argentina’s lingering macroeconomic imbalances and potential market-unfriendly policies, are all downside risks to the regional outlook. Undoubtedly, this region will take a long time to heal fully. Latin America is unlikely to recover it’s pre-crisis economic standing until 2023 at the earliest, later than any other major region.
United States: Poor virus containment and strong policy response
The United States is a region that has had a poor virus containment, but a powerful policy response and customer rebound. The US has never got the situation under control, however, was able to relax restrictions and resume mobility. The Outlook 2021 reports that “The CARES Act, passed in March, was surprisingly effective at limiting the potential lasting damage of the initial lockdown. Bankruptcies are lower than before the pandemic; corporate debt default rates are already declining, and personal incomes and household wealth actually increased through the recession.”
As for the monetary side, the Federal Reserve entered the crisis with room to decrease policy rates and full financial crisis-era playbook to fix issues in the credit market. Household and corporate cash balances are higher while interest rates are low.
There are still some major issues the US economy is masking such as 3.5 million workers no longer have jobs in the leisure and hospitality sectors; also, permanent unemployment is elevated. There may be lasting damage in the labour market, but it looks like the U.S. economic healing process is robust. We find that promising development on the vaccine would allow investors to look through the near-term disruption towards a more positive future.