In its 4Q 2020 Outlook & Review, QMA’s Global Multi-Asset Solutions team writes that the COVID-19 pandemic and resulting lockdowns led to the most severe global economic contraction in decades in the first half of 2020. But as the lockdowns were eased and restrictions were loosened, economic life moved back in the direction of normalcy. Measures of economic growth surged over the summer months, with the major advanced economies expected to post double-digit GDP growth on an annualized basis in Q3. Nonetheless, there are already signs that the pace of growth is losing momentum. Growth in Q4 will inevitably be slower than in Q3, and major advanced economies will post annual GDP growth numbers for 2020 that are deep in the red.
The pace of the economic recovery will depend on the answers to several critical questions. How will the pandemic evolve as the northern hemisphere moves toward autumn and the flu season and as kids head back to school? How quickly will effective medical breakthroughs emerge on the treatments and vaccine fronts? How quickly will governments and the private sector be able to scale up production of an effective vaccine, distribute it, and inoculate large segments of the population? Will the US presidential election and subsequent governing regime prove disruptive to both the economy and markets? Will there be a reescalation of US-China tensions? Will governments around the world continue providing sufficient fiscal stimulus to support their economies, or will fatigue and complacency set in? More action is needed on that front, and the cost of letting up will be many times greater than the cost of continued support.