Deutsche Bank bullish about the 2021 economic recovery — but there are two key risks

Traders work the flooring of the New York Stock Exchange.


LONDON — Deutsche Bank upgraded its world development outlook for 2021 but cautioned that two key risks might nonetheless spoil the economic recovery from the coronavirus disaster.

In the financial institution’s newest report out Wednesday — entitled “Hope on the horizon” — Deutsche Bank researchers up to date their calls resulting from what it known as “the incredibly positive” coronavirus vaccine information in latest weeks, with pharmaceutical giants Pfizer, Moderna and AstraZeneca all saying their vaccine candidates have been extremely efficient at stopping Covid-19.

“With efficacy rates at the upper end of expectations, this opens up the possibility of a much more rapid return to normal than had been anticipated only a month ago,” Deutsche Bank’s Group Chief Economist David Folkerts-Landau famous. “By the end of 2021 it may no longer have much impact on day to day life,” he added in the report.

With a vaccine on the horizon, Deutsche Bank mentioned “it is likely that global GDP (gross domestic product) will return to its pre-virus levels in the second quarter of next year.”

The home view is for world GDP to contract by 3.7% in 2020 with the U.S. economic system shrinking by 3.6%, the euro zone seeing a contraction of seven.4% and China rising 2.2%.

In 2021, Deutsche Bank forecasts that the U.S. economic system will develop 4%, the euro zone economic system will rebound by 5.6% and China’s economic system will acquire 9.5%.

Two key risks

The German lender warned there are two key risks that might overcloud this state of affairs, nonetheless.

The first threat is the challenges posed by flattening the virus curve as winter units in and attainable delays in vaccine manufacturing, distribution and acceptance by the public — given the rise of anti-vaccination actions and mis-information lately.

Deutsche Bank expects widespread vaccination to start by the first quarter of 2021 in superior economies, after which to proceed extra broadly in the second quarter. Yet, it mentioned “the big unknown is whether the population will accept to be vaccinated and if the vaccine may be made mandatory.”

The World Health Organization already warned, again in 2019, that vaccine hesitancy was certainly one of the prime 10 threats to world well being.

The second key threat emanates from attainable monetary disruption on condition that “central banks and fiscal authorities have taken aggressive actions, especially in the U.S. and Europe” to counter the economic disaster brought on by the pandemic.

“We see an increasing risk of financial disruption down the road stemming from the growing overvaluation of assets and mounting debt levels driven by the necessary extremes to which monetary and fiscal policy stimulus have moved,” the researchers mentioned.

“Financial crises have often been touched off in the past under such conditions by the inevitable shift from policy ease to policy tightening, which is likely still at least several years away, but could surprise sooner,” they added.

Market views

Deutsche Bank mentioned that its market views had not been modified from its earlier report: “We stick to our view that the S&P 500 is fully valued and that rotation into cyclicals from the heavyweight stay-at-home mega caps is the main trade. This may mean a rare period of European equity outperformance.”

Meanwhile, the U.S election outcomes, by which a divided authorities (with Republicans more likely to retain a majority in the Senate whereas Democrats retain one in the House) seems the almost definitely end result, “will also constrain the policy ambitions of the new administration,” it mentioned.

Nevertheless, Folkerts-Landau famous, if the Democrats have been to win the runoff elections in Georgia and take management of the Senate, a considerably bigger fiscal stimulus might consequence. “So this will be a big focus in January,” he added.

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