Taplow Group – Pandemic Business Overview – 15th February 2021

 

The global pandemic has seen businesses affected across every sector, in all parts of the world. Taplow partners across the globe have combined to give your local and regional insights on business situation coupled with pandemic updates.

Key Findings:
Companies
Global output and demand are likely to rebound strongly in 2021, driven by the rollout of vaccines and continued fiscal and monetary policy support. Inflation should creep up only moderately in 2021. We are seeing growth in countries who have emerged from lockdowns with pent up consumer confidence returning quickly.

Executives
Organizational adaptability may sound counterintuitive to goal setting, but one big lesson from Covid-19 is that we need more adaptable organizations and executives that are structured and have holistic views of their businesses and markets.

Employees
Many countries have in place furlough or policies in place to keep people in their employment. Most of these initiatives will end in Q2 2021 and unemployment will rise before falling back in Q4 2021.

AFRICA:
The number of confirmed COVID-19 cases on the African continent reached 3,729,019 as of Saturday, the Africa Centres for Disease Control and Prevention (Africa CDC) said. According to the continental disease control and prevention agency's Africa COVID-19 dashboard, the death toll related to the pandemic stood at 97,832 as of Saturday afternoon.
A total of 3,271,170 people infected with COVID-19 have recovered across the continent so far, the agency disclosed.

The Southern Africa region is the most COVID-19 affected area in Africa in terms of the number of confirmed positive cases, followed by the Northern Africa region, according to the Africa CDC.

South Africa
SA is likely to see economic growth of 2.9% y/y in 2021 as it rebounds from the -7.3% y/y collapse of last year. This muted recovery has been accompanied by an unsustainable expansion in Government borrowings and a widening fiscal deficit.

Planned Government borrowings for 2021/22 sit at R4.6 trillion (86% of GDP), and are forecast to reach R5.5 trillion by 2023/24 (93% of GDP) and 95% of GDP by 2025/26. As these ratios deteriorate and SA sinks deeper into a debt trap, lower credit ratings are all but guaranteed.

ASIA:
Digital platforms and other technology-based tools are providing new growth opportunities for businesses of all sizes and across all industries in Asia and the Pacific—a trend which could contribute significantly to the region’s sustainable recovery from the coronavirus (COVID-19) pandemic, according to a new report by the Asian Development Bank (ADB).

“Countries in Asia and the Pacific have leveraged rapid technological progress and digitalization to recover and reconnect to the global economy during the pandemic. Technology is helping to forge new global linkages, which offer enormous economic opportunities, but also present new risks and challenges,” said ADB Chief Economist Yasuyuki Sawada. “It is imperative to implement policies and regulations that manage the disruptions and maximize the gains from the burgeoning digital economy, and to lock in these gains through enhanced regional cooperation.”

Australia
Right around the country, businesses are re-opening, confidence is growing, and people are getting back to work. Australia’s business, social and economic comeback is happening and quite real.

There is consumer confidence, and this is translating into retail expenditure. We are in the company reporting season and the results are encouraging.

The Australian Federal Treasurer reported “The International Monetary Fund (IMF) is forecasting the economy of Spain to contract by 11 per cent; the UK by 10 per cent; Italy and France by 9 per cent; Canada, Germany and Japan by more than 5 per cent and the United States by 3.4 per cent. It is in stark contrast to Australia at less than 3 per cent. “

Consumer confidence rose and is now up in 16 of the last 20 weeks. Business confidence increased across all industries and is strongest in retail. Nearly 80,000 motor vehicles were sold in January, up more than 10 per cent over the year. New housing approvals increased for the sixth consecutive month, up more than 20 per cent over the year. There is a fall in the unemployment rate to 6.6 per cent, and ninety per cent of the 1.3 million Australians who lost their jobs or saw their working hours reduced to zero are now back at work. The strength of the labour market has exceeded even the most optimistic forecasts of Treasury and the Reserve Bank of Australia.

International returns to Australia are causing some isolated cluster COVID19 circumstances. However, the Commonwealth Government and the State Governments are responding quickly and proactively to these circumstances. Cases have been as a consequence of returned international travellers not community transmission. Immunisation begins in February and is expected to have the population covered by September.

India
Overview of Indian Economy
India's economy is projected to grow at 7.3 per cent in 2021, even as it is estimated to contract by 9.6 per cent in 2020 as lockdowns and other efforts to control the Covid-19 pandemic slashed domestic consumption, the UN has said.

Agriculture remained the silver lining and outperformed all the sectors during the pandemic. Consumer-facing services, manufacturing, and construction were hit hardest, but have started recovering.

The Indian start-up ecosystem, which defied odds during a pandemic-hit year to create record 12 unicorns, has the potential to be the engine of growth in the medium to long run, according to the Economic Survey 2020-21. Currently, India is home to 38 unicorns — start-ups with a valuation of over $1 billion — as per the NASSCOM Tech Start-up Report 2021.

Government Initiatives
The Government of India announced US$36 billion stimulus package to generate job opportunities and provide liquidity support to various sectors such as tourism, aviation, construction, and housing.

India's cabinet approved the production-linked incentives (PLI) scheme to provide US$27 billion over five years to create jobs and boost production in the country.

The Government of India, under its Make in India initiative, is trying to boost the contribution made by the manufacturing sector with an aim to take it to 25% of the GDP from the current 17%.

To facilitate the growth of start-up’s, the Indian Government had announced the 'Start-up India, Stand-up India' initiative. As of 23 December 2020, the Indian Government has recognised a total of 41,061 start-ups and 4.7 lakh jobs have been reported by more than 39,000 start-ups.

Sector Wise Investment
Roads & Highways Infrastructure: Infrastructure sector received an allocation of US$16.20 billion.

Life Sciences & Health Care: Health and well-being topped the priority list in the recently concluded Budget. The total allocation to the health care sector is US$30.70 Billion, a 137 percent increase over the past year.

Ports, Shipping & Waterways: US$274.29 million to be offered in PPP-mode in FY21-22 for operation of major ports.

Power Sector: A comprehensive National Hydrogen Energy Mission 2021-22 to be launched in 2021-22.

Automotive Sector Reforms: The announcement of voluntary vehicle scrapping policy to reduce vehicular pollution and oil import bill is a welcome move and should boost demand in the industry.

India - Road ahead
India is expected to attract foreign direct investments (FDI) of US$120-160 billion per year by 2025, according to CII and EY report. Over the past 10 years, the country witnessed a 6.8% rise in GDP with FDI increasing to GDP at 1.8%.

Singapore
Singapore’s economy shrank a record 5.8 per cent in a pandemic-hit 2020 according to preliminary data released last month although most industries saw some improvement in the fourth quarter of last year as COVID-19 restrictions were eased. Recovery in 2021 will depend on how its vaccination drive progresses as well as the rate of similar initiatives in other countries particularly the United States and Europe.

Singapore announced its 2030 Green Plan to strengthen Singapore’s economic, climate and resource resilience, improve the living environment of Singaporeans, and bring new business and job opportunities. They are entitled: "Green Economy", "City in Nature", "Sustainable Living", "Energy Reset" and "Resilient Future".

Singapore will aim to become a sustainable tourism destination, a leading centre for green finance and services to facilitate Asia’s transition to a low-carbon and sustainable future, as well as a leading regional centre for developing new sustainability solutions.

It is designed as a “whole-of-nation movement” to advance Singapore's agenda on sustainable development over the next 10 years.

Daily COVID-19 cases in the community have been kept to single digits with majority of the cases coming from overseas this past two months.

This Chinese New Year, the Government has announced new measures to curb transmission. Per day, household can host at most eight visitors and visitors can only visit two households.

New Zealand
The latest New Zealand Institute of Economic Research Quarterly Survey of Business Opinion shows a further improvement in business confidence in the final quarter of 2020, as businesses held onto the recovery in sales seen in September.

A net 16 percent of businesses expect a deterioration in general economic conditions over the coming months, on a seasonally adjusted basis – lower than the 38 percent in the previous quarter, and well below the 68 percent of businesses feeling pessimistic in March 2020. When it comes to firms’ own trading activity, a net 1 percent reported reduced demand on a seasonally adjusted basis. This measure suggests a rebound in annual GDP growth to around 2 percent at the end of 2020 from the lockdown lows in mid-2020.
Strong construction demand boosts sentiment in the building sector the building sector remains the most optimistic of the sectors surveyed, as strong construction demand supports a lift in confidence. With the pipeline of residential, non-residential and Government construction work increasing, building sector firms are hiring to keep up with demand. The rebound in construction activity is driving capacity utilisation in the sector to record highs.

Although sentiment in the other sectors has improved, businesses are generally still cautious about general economic conditions ahead. Demand has improved in most of the other sectors, but firms are still finding it difficult to pass on rising costs by raising prices. This is weighing on firm profitability.
Firms looking to hire and invest Despite weak profitability, increased certainty about the outlook is encouraging businesses to hire and invest. A net 15 percent of firms are planning to increase headcount in the next quarter, while a net 10 percent of firms are looking to invest in plant and machinery. These results indicate a recovery in employment and business investment over 2021.

 

As employment demand improves, labour shortages are becoming more acute. This is particularly the case for skilled labour, with a net 43 percent reporting difficulty in finding skilled labour – close to levels seen in early 2020. Capacity utilisation rises to record highs the strong rebound in construction demand has underpinned a surge in capacity pressures in the building sector, with capacity utilisation rising to record highs. This increase in capacity pressures should support a lift in wider inflation pressures later in 2021.

EUROPE:
The region is in the midst of a COVID-19 second wave; many countries are experiencing some form of lockdown and restriction of movement. Whilst vaccines are being dispatched, start up production issues have led to lower than anticipated numbers being delivered. The EU is seeking alternate supplies from India/ Russia or China to bolster numbers of vaccinees available.

France
The Governor of the Banque de France, François Villeroy de Galhau, confirmed the forecast of 5% growth in France in 2021, established by the institution in December. This is a "robust and rather cautious forecast, while of course recalling the strong health uncertainty", added the governor of the Banque de France. "Thus, after its strongest recession since 1945 last year (-8.3%), the French economy in 2021 would record its strongest growth since 1973 and the oil shock," the official said.

"In the autumn, the French economy resisted better than expected, with a loss of activity limited to -7% in November and -5% in December, five times less than during the first containment," he added. The fourth quarter of 2020, marked throughout France by a six-week period of confinement followed by a curfew (from mid-December), could not escape a fall in GDP. But the fall was limited to -1.3%. This second containment caused much less damage than the first: in November, activity was 11% below normal (i.e. in the fourth quarter of 2019, just before the pandemic), when it had fallen by 30% in April .

"Compared to the euro zone (-6.8% in 2020, +4% in 2021), we have plunged more sharply, due to the confinement of spring, but we would rebound better, I add that unemployment should rise less than we feared, given the best employment figures at the end of 2020," he said.

Evoking the beginning of 2021, François Villeroy de Galhau noted that "faced with a severe shock, the French economy is resisting rather well overall, with a loss of activity of -5% in January compared to the pre-Covid period, and expected again around -5% in February". "This resilience is both a good surprise for the end of 2020, and reinsurance for 2021", judges François Villeroy de Galhau.

Germany
In Germany, the actual lockdown will end in different steps starting in March with school openings and barber shop openings agreed upon, others especially in retail sectors is still to be defined - for some ones it is too early because they fear an additional pandemic wave - for others it is not fast enough. Retail - with exception food and essential - and gastronomy - with a few take a way or delivery options - and hospitality etc. are closed, cultural entities as well.

Most executives continue to work from home. Manufacturing Industry sectors and chemistry and pharmacy production is still performing but facing some restraints due to some border closings due to virus hot spots in other countries. In financial services most assets driven business is performing, others are under cost cutting pressure, there are declines expected to come later this year or next year because of a lot of value adjustments that shall be needed. Professional services sectors are diverging.

Digitalization in all sectors is accelerating and threat for more environment and Government components in business is still increasing. Government money spent in packages to avoid collapse of firms and unemployment is tremendous, many are unsure how long this could be affordable.

Generally, there had been some enthusiasm about the announced vaccine availabilities in end of 2020. That changed a bit, many persons are complaining now about many things.

This is a federal election year: Due to unification engagement in the EU the vaccination is slow but should be accelerating as the federal elections are in September. The general feeling of a majority is down or decreasing, but when lockdown is eased, spring arrives and temperatures outside increase and vaccination is advancing, that will improve - expected around Easter.

Russia
Official statistics say that Russia has by now vaccinated around 2.2 million people (1.5% of the population), some already received both parts of the vaccination. The number of coronavirus infections is declining daily. Many regions, in particular Moscow, lifted a variety of restrictions and restaurants, bars and nightclubs are allowed to open again, if obeying to the hygiene measures.

After a high efficiency mentioned about the Russian vaccine Sputnik V in the Lancet, Russia hopes for an export success. The vaccine is already approved in 27 countries. In Europe Montenegro has approved the vaccine and Hungary already started to use it. Russia has approved that Sputnik V can be produced in Serbia and there are discussion with other countries. The application to register the Russian vaccine in the EU was recently approved. Russia has two more vaccines in the making. One of them is supposed to go into mass production shortly.

The Russian Minister of Economic Development estimates a 3.9% growth in investment for 2021. The unemployment rate is decreasing according to official statistics. It now stands at 5.9% compared to 6.6% in 2020. President Vladimir Putin is confident that Russia will reach the pre-crisis rate of 4.7% this year. In total, the Russian Economy shrunk by 3.1% in 2020, which is less severe than estimated.

UK
The UK economy shrank by a record 9.9% last year as coronavirus restrictions hit output, official figures show.

The contraction in 2020 "was more than twice as much as the previous largest annual fall on record", the Office for National Statistics (ONS) said. However, the economy looks set to avoid a double-dip recession after growth picked up at the end of the year.

In December, the economy grew by 1.2%, after shrinking by 2.3% in November, as some restrictions eased. Hospitality, car sales and hairdressers recovered some lost ground, the ONS said. The growth meant that in the October-to-December quarter the economy expanded by 1%. As a result, the UK is expected to avoid what could have been its first double-dip recession since the 1970s.

The prospect of vaccines reaching all vulnerable groups by April could herald a gradual easing of social restrictions with a return to normal by the autumn in our main scenario. This could see GDP grow by 4.2% in 2021. While the UK managed to secure a deal with the EU, avoiding significant disruptions to trade, the realities of the new trading relationship will dampen economic growth for a while.

Uncertainty about progress in combating the pandemic could see growth oscillate between 5.6% in our upside scenario and 2.2% in our downside scenario in 2021.Government intervention, and in particular its Job Retention Scheme should help keep unemployment relatively low considering the size of the negative shock experienced by the economy. Unemployment could peak at 6.3% this summer and average 6% this year.

The expiry of the VAT cut to hospitality businesses should see inflation rise in April, although we expect the headline inflation rate will remain below the Bank of England’s 2% target over the next two years.

AMERICAS:
The Latin America and the Caribbean region will experience a contraction of -7.7% in 2020 but will have a positive growth rate of 3.7% in 2021, mainly due to a statistical rebound that will nonetheless be insufficient for recovering the economic activity levels seen prior to the coronavirus pandemic (in 2019), ECLAC indicated today in a new report.

Brazil
Despite new infections and fatalities remaining high, the economy has started to recover across a wide range of sectors. GDP growth is expected to be 2.6% in 2021 and 2.2% in 2022, but activity will still fall short of pre-pandemic levels by late 2022. Inflation will remain below target and high liquidity provision, including through record-low interest rates, will support investment. Fiscal vulnerabilities have been exacerbated by the necessary policy response and public debt has risen. A failure to continue structural reform progress could hold back investment and future growth.

The strong fiscal and monetary policy response managed to prevent a sharper economic contraction. A temporary emergency benefit has supported over 67 million low-income households, cushioning the impact on household incomes and poverty. As the recovery will take time and some jobs may not return, well-targeted improvements in social protection would be warranted. Reallocating some current expenditures and raising spending efficiency would allow such improvements to be financed, while simultaneously resuming the fiscal adjustment underway before the pandemic. Structural reforms will enhance domestic and external competition and improve the investment climate that could raise productivity, while better professional training would allow more people to seize new economic opportunities.

Canada
Canada’s 2021 economic outlook is similar to that of other developed countries. After the largest economic contraction since 1945 (a dip we estimate at 5.5% of GDP), the economy should grow sufficiently to largely offset the losses of 2020.

Strong consumption and a rebound in exports will give the Canadian economy a boost. Bringing forward government investment projects should also provide a tailwind to Canadian economic growth. Conversely, the postponement of business investments and a slowdown in the housing market will limit the extent of the recovery.

Ontario, which had the strictest health restrictions in 2020, could experience the country’s strongest economic growth in 2021. New investment in the automotive manufacturing sector is expected to give an additional boost to the province’s manufacturing sector. A resurgence in immigration should also revitalize the economy, particularly in the Greater Toronto Area. Growth of 4.5% is expected in Ontario.

USA
In the first 100 days of the Biden administration, the policy agenda will focus on a fiscal stimulus package, steps to combat the pandemic as well as immigration reform, but no tax hikes.

In addition, expect the new president to reaffirm the trans-Atlantic partnership, reduce trade tensions, and pursue improved relations with Canada and Mexico. US tariffs on China will not suddenly reverse, but the rhetoric is expected to be less heated.

According to the most recent forecast released at the Federal Open Market Committee (FOMC) meeting on Dec. 16, 2020, U.S. GDP growth is expected to contract by 2.4% in 2020. It is estimated to then rebound up to a 4.2% growth rate in 2021, and slow to 3.2% in 2022, and 2.4% in 2023.

We hope that you, your family, and work colleagues continue to stay healthy and safe. We at The Taplow Group are here to support you and your company through this crisis and beyond. We will be back with another set of updates soon. Till then, take care and stay safe!