‘Massive second-half recovery’: Biden, China and the global economy

'Massive second-half recovery': Biden, China and the global economy

Snow flurries may have greeted Joe Biden as he stepped out for his inauguration as US president on a blustery Wednesday in Washington, but financial markets were not concerned about the weather.

Last week, China released figures showing its economy avoided a contraction in 2020 and a new US administration promising to “act big” and revive the economy.

Even in Europe, still in the midst of a painful second wave of coronavirus, Christine Lagarde, president of the European Central Bank, said that once Covid-19 vaccines were widely used on the continent, she too could hope for a “Demand resumes as containment measures are lifted and uncertainty disappears”.

Ever since Mr Biden won the US presidential election and vaccines have proven to be effective, the stock markets have been ahead. The MSCI World Index rose 12.2% in November, followed by gains of 4.5% and 3.6% in December and so far in January respectively. When Mr Biden said on Wednesday it was “a day of history and hope,” the stock markets were way ahead of the new president.

President Joe Biden signs an executive order the day after taking office. Since his election victory in November, the stock markets have taken the lead © Al Drago / Bloomberg

Reza Moghadam, chief economic adviser at Morgan Stanley, says that while there are differences of opinion on the extent and locations of an economic rebound in 2021, “the world’s growth will be stronger than the people. don’t think so, because you will have a massive recovery. in the second [half]”.

The growing optimism rests on the three foundations of global health, politics and economic policy, all of which seem more stable and firmly entrenched than seemed possible just a few months ago.

The most important foundation of economic performance is success in the fight against Covid-19. The effectiveness of coronavirus vaccines and the start of their roll-out across the world have alleviated fears that economies are suffering from a series of chronic stop-start cycles with periodic waves of infections and lockdowns.

With the Biden administration announcing it would remain a member of the World Health Organization and join its Covax global vaccination program to stop the spread of the virus, the chances of a concerted push to suppress the disease have received their biggest blow inch since a second wave of deaths hit advanced economies in the northern hemisphere last fall.

Goldman Sachs believes that in the US and UK, where vaccine deployment is more advanced, the effects on economic performance will already be visible in the second quarter even before effective herd immunity is achieved.

“Short-term reduction in vaccine hospitalizations is likely to kickstart the rebound in growth through relaxed restrictions and some reductions in voluntary social distancing from consumers,” its economists Daan Struyven, Sid Bhushan and Dan Milo wrote. .

While Mr. Biden has pledged to “mend our alliances and re-engage with the world,” the immediate geopolitical backdrop is also much more favorable than under former President Donald Trump. Few expect immediate resolution of contentious international issues, and clear tensions will remain between the United States and China over trade policy and across the Atlantic over corporate taxation. But the relief is palpable among officials that they no longer have to constantly adjust part of their screens to Twitter in the event of a sudden reversal in American policy. Ursula von der Leyen, President of the European Commission, hailed a “new dawn” in relations.

A lively Wuhan this week, the Chinese …

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