As we head towards the end of a tumultuous year and look towards 2021, Taplow partners across the globe have combined to give local and regional insights on the business outlook for the New Year.
EMEA Region
Africa
The region will rebound in 2021, however growth will vary across countries. While South Africa is expected to experience a weak recovery, overall growth in Eastern and Southern Africa region is expected to average 2.7%. While Nigeria’s economic recovery will be weak, the Western and Central Africa region is expected to experience an average growth of 1.4%. Many countries have seized the opportunity within the crisis to move faster on necessary reforms and investments that will be crucial for long-term development. However, concerns of a second wave are fuelling further uncertainty.
In South Africa, there are various estimates of the economic fallout for 2020, ranging from real GDP growth of –7.8% (National Treasury), and –8.2% (South African Reserve Bank) to –11.5% (OECD).
Given the magnitude of the expected contraction in an already-weak economy, the need for concerted action to transition onto a path of economic recovery has become even more urgent. Policy tools, such as the emergency fiscal stimulus and an easier monetary policy stance, are likely to only cushion some of the worst impacts.
The outlook for African banks in 2021 is stable as operating conditions and activity recover gradually, translating to slightly higher business volumes and a rebuilding of lost revenues, but a return to pre-pandemic performance levels is unlikely for at least another two years. Fitch forecasts a moderate economic recovery across the region (4% for 2021 vs -3% for 2020). The high uncertainty around the global economy continues to weigh on African economies. Market volatility is unlikely to ease. Currencies will remain weak against the US dollar. Asset-quality deterioration will be more pronounced in 2021 given the severity of the shock and protracted recovery of key industries (especially commodities and export-oriented sectors), rising unemployment and the likely increase in corporate defaults, exacerbated by the unwinding of debt relief and other support measures.
Africa’s annual investment in infrastructure has doubled to around $80 billion a year since the beginning of this century. There is also an important opportunity to grow manufacturing exports and make Africa the world’s next great manufacturing centre as industries shift away from China to lower-cost regions.
Sub-Saharan Africa saw the world’s fastest rate of new broadband connections between 2008 and 2015, and mobile data traffic across Africa is expected to increase sevenfold between 2017 and 2022. Africa has more than 120 million active mobile money accounts, over 50 percent of the global total; this has leapfrogged many people over traditional banking products.
Denmark
The expansionary fiscal policy as well as taking active measures to curb the spread of COVID-19 have helped Denmark relatively well through the crisis in 2020 compared to other countries. Research shows that the Danish GDP is falling less than expected in the latest report in August. The reason behind this is an economic recovery in the third quarter as well as active stimulus measures.
However, Denmark is currently going through a new wave of infection and is now in the most critical and uncertain situation since March, which may change the outcome of this research. The Financial Statement forecasts that the Danish economy is expected to grow by 2.8 percent in 2021 and 3.1 percent in 2022 after a lessening of 3.8 percent this year. The decline in Danish economy 2020 will thus be smaller than previously expected. However, it must be emphasized that these forecasts have been made before the current spread of COVID-19 and therefore there is still a high uncertainty in the upcoming economic situation.
The Danish Minister of Finance, Morten Bødskov states: The report shows that the Danish economy has far fared well through the corona crisis compared to many other countries. With the figures we have now, our active fiscal policy will cover 55,000 Danish jobs next year. At the same time, however, it is important to that that we are currently in the most critical and uncertain situation since March with a new wave of infection, which must be expected to have a negative effect on the economy. Therefore, the government’s priority remains to get Denmark and the Danish economy through the crisis as safely as possible. The fiscal policy measures that have contributed to strengthening the economy in 2020 include both economic aid packages and stimulus measures.
Overall, the government’s economic policy is estimated to hold up to 55,000 jobs in 2021, and 45,000 jobs in 2022. The Danish economy is still fundamentally healthy, and the economic measures are helping to prevent the crisis from becoming even deeper and this even more expensive. Even though we will have a deficit in 2020, it will not the greater than the profit it was the year before. Denmark’s economy will remain robust”.
Reference: Danish Ministry of Finance
France
After a steep drop in activity in the second quarter, during the first lockdown, then a very marked rebound from June to September, the French economy is undergoing another negative shock at the end of the year linked to the resurgence of the epidemic and to the health measures put in place. This second lockdown, which was eased at the end of November with the reopening of non-essential shops, is having a significant impact, but one that is much less severe than in the spring. GDP is thus projected to decline by around 9% over the full year 2020.
According to the Banque de France, at the start of 2021, economic activity should be penalised by continuing constraints on household consumption as the health measures are expected to be lifted gradually.
The Banque de France baseline scenario assumes that the epidemic will not end immediately and that vaccines will only be fully rolled out towards the end of 2021. Under these conditions, activity is only projected to return to its 2019 level in mid-2022, and the recovery will be spread over 2021 and 2022 with GDP growth of around 5% in both of those years. In 2023, growth is projected to remain slightly above 2%, which is still a high rate, albeit less unusual.
Thanks to the cushioning provided by public finances, household purchasing power should be preserved in average terms in 2020 and 2021, despite the recession. Business investment should rebound sharply in 2021 after plunging by 10% in 2020.
Although the short-time work schemes have helped to limit the deterioration in the labour market in the short run, a delayed downturn is expected to take hold in the coming quarters, pushing the unemployment rate to a peak of close to 11% in the first half of 2021. It should then fall back towards 9% by the end of 2022.
Finland
GDP growth in Finland is estimated to be around 3% in 2021 in comparison to 4,3% drop in 2020. The recovery will be gradual and slow.
Finland still remains one of less infected countries in Europe throughout the Pandemic in 2020. Restrictions and following them are key success factors, as well as natural social distance in a country of few people.
Political situation is also rather stable and no major elections taking place in 2021. The left-wing government has been in place for 2 years now. Traditionally strong manufacturing and machinery industry has taken a hit due to pandemic together with travel and tourism of course.
Finland seems to finally finalize the huge social and health service renewal, which has been in process for last 6 years. This changes and opens the market more towards private health care service providers. We have an aging population and the need for services will grow. Finland will have too many people retiring in near future to maintain sustainable income and have decided to make changes towards having people staying in work for a longer time.
Germany
In Q3 in Germany the GDP procurement index and other business benchmarks were slightly better than expected as many business sectors were operating again after the 1st lockdown; GDP +8,2% Q3 compared to Q2 of 2020 and more than1 per cent better than expected, equivalent -4,2% down to Q3 of 2019, Q4 will be down again, since 2nd of November a lockdown light is in place. Restaurants are closed, gyms are closed, hotels are closed for all private stays. However, shops and schools remain open. This will remain with a few adjustments at least until end of 2020.
Benchmarks reflecting the pandemic situation are still better than in the neighbour countries, including the business benchmarks. The international dependency of Germany is larger than in most other countries therefore trade impacts will hurt more in the next months. The vaccine news had already started some positive impacts but still companies in many segments are not investing and waiting or performing intensive cost cutting to improve resilience. Common view is: In 2021 there will be growth, but there are scenarios indicating that the GDP of 2019 will be reached again only in 2023. Tremendous government support packages - slightly larger ones than in neighbour countries - are welcomed but strongly questioned on how that could be paid back once, same applies to EU recovery packages as well. - All specific numbers and statistics are available for public on EU webpages.
Rates of employments look still good due to short-work programs and many firms are waiting because if they need qualified employees again in the future they may face difficulties to get them, therefore they try other cost saving measures instead of making people redundant. Larger firms try to promote internally or to fill leadership roles in standby and some roles requiring more experience are left unfilled longer, young talents and entry-levels are hired.
There are sectors that are performing as usual, some are showing improvement, many have declines or nearly zero business. Some sector examples: Automotive and Manufacturing see declines; Constructions see growth; Banking, Private Equity and Real Estate - as usual but with different threats and see problems arising; Insurance - face cost problems evolving, Pharmacy - many perform very good with exceptions; Healthcare - heterogeneous, mostly declining if not in the pandemic recovering chain; Chemistry - some declines; Food Retail - strong increase; Online Retail - strong increase; Other Retail - decline; all Hospitality - strong decline; Culture - strong decline; Professional Services - some - especially governance and IT related ones - look good but many decline, if tasks could be postponed most customers are trying that.
Italy
The economy is set to rebound and recover most of this year’s losses in 2021. Investment activity should be supported by increased EU funding and an accommodative fiscal policy stance, while the reopening of the global economy should fuel foreign demand. However, waves of Covid-19 infections and a high public debt cloud the outlook. Focus Economics panellists project activity to expand 5.7% in 2021, which is down 0.1 percentage points from last month’s forecast, and 2.7% in 2022.
Italy is set to receive as much as 209 billion euros ($246 billion) in grants and loans under the European Union’s recovery fund. Finance Minister Roberto Gualtieri has pledged to disclose a “significant” long-term target for reducing the country’s crippling debt, which stood at 134.7% at the end of 2019.
Norway
Anticipated growth in GDP for Norway in 2021 is between 3,5 and 5,8 %. This will bring Norway back to approximately 2018 level. National Interest rate is still 0,25% but expected to rise slowly from Q3 or Q4 In 2021.
Unemployment rate is still low, 5.5%, but this is relatively high in Norwegian standards. Expected to be between 3.6% and 4% at the end of 2021
Travel and tourism are the sectors, which obviously are badly hurt. Also, sports, theatres and other cultural players are struggling; but this has little influence on the Norwegian economy. Business-life in general is going reasonably well. More on-line shopping, but this too has relatively little impact on the economy.
There will be a national election for new Government in September. After 8 years with a conservative Government polls suggest this will change. This will probably lead to more taxation, and perhaps a setback for a part of our industry.
Russia
The Russian state is continuing to support businesses with various measures but must deal with serious challenges. RUB dropped by about 30% in the last 11 months compared with EUR, and there is no clear view on whether it will stabilize. The low demand in Russia's crucial sector of oil and gas puts continuous pressure on the economy.
Consumption and purchasing power has been down this year but an increase early next year is likely. Social benefits which will be increased in 2021 and as Russians could not spend so much in 2020 the savings from this year might lead to higher consumption during 2021. Russian exports of 2020 are estimated to decline by up to 21% compared to last years. Imports are growing and will continue to grow; the Russian Central Bank estimates an import growth of 3.9-5.9 % for 2021. The foreign direct investments decreased by 80% to EUR 4.2 billion, out of which Germany stood for 1.3 billion.
World Bank states that social policies put in place by Russian Government earlier this year including increase in the maximum level of unemployment benefits and a series of family allowances are compensating the severe impact of the crisis on employment and disposable incomes. However, the crisis has increased unemployment in all regions but with most job losses concentrated in manufacturing, construction, and retail / hospitality services. In September, the unemployment was at 6.35% according to CEIC.
In the World Bank's annual report on the Russian economy, it is said that stimulative fiscal and monetary policies, a high share of the public sector and a weak integration of Russian companies into global value chains have kept the Russian economy from collapsing. For coming years an expansion of Russia’s participation in manufacturing and services global value chains could offer the country long-term growth. This could help fulfill Russia’s National Goals aimed at developing exports of high-tech and agricultural goods, creating jobs in these sectors, and speeding up Russia’s technological development.
The World Bank predicts that due to more evident economic activity in the third quarter, Russia's GDP is projected to fall by 4% in 2020. Assuming the Sputnik V vaccine is safe and effective, consumer and business confidence can improve; this will set the base for a gradual return to economic growth with 2.6% in 2021 and 3% in 2022.
The AEB event "The European Union & Russia: Allies? Partners? Rivals?" had several exciting speakers that reflected on the relationship between Russia and the West. One of the speakers said that Russia does understand that China poses a risk to Russia's territorial integrity. It has chosen this cooperation anyway because China is considered not to be a threat to the current Russian political system; with the EU, it is currently the opposite.
Even if few of the speakers could foresee this changing any time soon, it was mentioned that the rise of China might push the EU and perhaps the USA to cooperate more positively with Russia again. It was also said that NATO is gradually transforming from being an alliance against the Soviet Union to be an alliance against China. This might give a new opportunity for Russia and the West to start talking again about future cooperation. Another speaker highlighted that the EU remains Russia’s largest investor, ahead of both the USA and China.
The next election to the Russian State Duma will be held latest on the 19th of September. Currently, United Russia has a majority in the Duma.
There are a total of six parties in the Duma. President Putin commented during his annual marathon press conference: "Up to 16 parties can take part in the election campaign next year. They have quite different points of view, but at the same time, practically each of them acts from a patriotic position. All have one goal: the well-being and development of the country." As Carnegie Moscow Centre recently pointed out in a research report, a big majority of Russian voters are conservative.
One could therefore expect more competition to United Russia in upcoming elections compared to earlier elections. ABC News noted that Putin in his press conference spoke positively about President Elect Joe Biden, describing him experienced in both domestic and foreign policy. Putin expressed hopes for a better relationship with the USA.
Spain
Spain has a very internationally integrated economy, primarily based on the tourism industry and the service sector. As a result, the COVID-19 pandemic has impacted the Spanish economy significantly, causing a GDP drop of -11% in the year 2020.
Nevertheless, Spanish government forecasts place expected GDP growth at between 2-4% for the year 2021.
The unemployment rate is extremely high (15.8% in 2020), but the figure is even larger for people under 35. Public debt is projected to skyrocket from 95% of GDP in 2019 to 117% in 2020 and 122% in 2021.
Among the companies which have been able to weather the storm more successfully are construction firms which have invested abroad, especially in the US and Latam ( i.e. Ferrovial, Acciona etc.), Pharmaceuticals (ROVI will manufacture the Moderna Vaccine for all of Europe in their laboratories at Madrid and Granada)
In the financial sector, to which The Taplow Group Spain has a great exposure, we have to point out how the Private Equity industry is also growing, raising funds to invest in special situations and restructuring. In the private banking and wealth management field, banks are also active, trying to expand their business due to the savings rate increase.
Sweden
Statistics Sweden's new calculation of Sweden's GDP came during the third quarter of the year. GDP increased by 4.9 per cent compared with the second quarter, but the economy is far from recovering. During the second quarter, we saw a decrease of as much as 8.0 percent, the largest decrease between two quarters that has ever been measured.
The reduced economic activity has shocked the entire labour market. During the spring, the number of notices increased sharply and since March, 112,000 people have been notified of termination. In addition, 88,000 applications for short-term layoffs have been received by the Swedish Agency for Economic and Regional Growth and almost 600,000 employees have been covered by the system.
The strong impact on the labour market has been felt in most industries. The number of registered unemployed has increased to just over 450,000 people, an increase of 24 percent compared with the same period in the autumn of 2019.
The corona pandemic, and not least the advice and restrictions issued by the government and authorities, have resulted in a drop in demand that has hit the economy hard, but some industries have been affected more than others. One industry that has been hit particularly hard is the hotel and restaurant industry. According to the latest calculations from the
National Institute of Economic Research, the loss of turnover in the industry is currently 65 percent. In May 2020, 71 percent of industrial companies answered that they had lost sales. In the latest figures from the end of November, the level is 48 percent.
In trade, the situation is currently uncertain. After showing a steady recovery since May, the proportion of companies that now are experiencing a loss are increasing again. At the end of November, 57 per cent of companies in the trade answered that they had a loss in revenue, compared with 43 per cent in October.
Seen across the entire business community, 55 per cent of all companies in the National Institute of Economic Research's survey answered that they have a loss of turnover compared with the same period last year. In May, that figure was 74 percent. A recovery is underway, but for many in Sweden the crisis is still very much present.
What to expect for 2021?
The outlook for 2021 is that GDP will increase by 4.0% and the number of unemployed by 9.5%. As a country, Sweden is in a good position to handle the recession, as its level of public debt is among the lowest in Europe.
Among several measures, the economic recovery will be supported by a powerful green restart package. Extensive green investments in climate-neutral solutions in both industry and the public sector will lay the foundation for new jobs and strengthen the Swedish economy and competitiveness.
The forecasts show continued increased trade and changed buying habits of private individuals online. This means that continued growth will probably be demonstrated in various logistics solutions for retail and food.
The distribution of vaccines will support a better mood among both companies and consumers. We see a pent-up need for both consumption and investment. Hopefully, this will give a boost to both growth and the stock market in 2021.
There is a lot of discussion about the need for new skills within companies. New ways of working are necessary to meet the new Sweden after Covid-19 pandemic.
We will probably see a high demand for acquisitions and sales of companies.
The environment is a high priority issue. Both environmental impact from the own company and products that help reduce environmental impact.
Companies are working to become climate positive and thus companies in the green industry will continue to grow. Wind power, solar cells is large and will continue to grow in 2021.
Regardless of what forecasts and speculations we make about 2021 in Sweden, everything will be dependent on the success of the vaccine distribution and to which extent the economic stimulus will continue.
Note: References: SCB, konjunkturinstitutet, arbetsförmedlingen, government.se, ekonomifakta.se, DI.se
UK
The OECD in its twice-yearly economic outlook, the Paris-based international organisation said that the world economy would on average regain the lost output from the Covid-19 crisis by the end of 2021, but the UK would be far behind the pack.
Towards the end of next year, Britain’s economy would still be 6.4% smaller than it was in the fourth quarter of 2019, the OECD predicted. Output was now stalling at between 8 and 10 per cent below where it was in late 2019, the OECD said, highlighting the difficulty the UK would face in recovering quickly to the levels of economic performance, unemployment and living standards before the crisis.
Unemployment is forecasted to rise further over 2021-22 as Government job support schemes end but is forecasted to slowly fall in the years following this.
Overall, consumer confidence is forecasted to decline by 12% in 2020-21. Though future confidence levels depend on how long it takes for the pandemic to come under control, confidence is expected to quickly rebound, increasing by 11.2% in 2021-22 and continuing to grow over the next five years.
An emergency stimulus has helped to instil a degree of confidence among businesses. However, as trading conditions remain difficult and the prospect of imminent economic recovery is weak, business confidence remains low. As operations gradually return to normal, business confidence is expected to rebound from its current historic low in 2021-22 and continue to rise over the next five years.
We anticipate the healthcare, technology, logistics, financial services, and online service sectors to continue to show real growth in 2021 in the UK, whilst industries such as retail, hospitality and air travel will continue to see negative impact for some time.