As we come closer to the end of the year, the world prepares to leave behind the worst year in recent memory. The global economic recessions created by the pandemic comes only in second place when compared to the health crisis and the number of people that lost their lives.
Everyone was affected by the pandemic. From countries far away to local businesses, the economic activity took a dive everywhere. It is the first time in economic history that the entire world was in recession at the same time. Sure, recessions existed earlier, but only in some parts of the world. In fact, one of the most important theories in economics, the business cycle theory, is based exactly on this principle. For example, when investors see signs of economic peak, they exit and move investments in other parts of the world where economic expansion is just starting.
Long Way to Recovery
Despite the doom and gloom, humankind is innovative and optimistic. Sure, it was tough, and it will still probably be.
However, a few vaccines already have promising results. Money from states and governments is not an issue. In other words, the good part from falling so much is that there is only one way left – up.
Slowly but surely economies will recover. As the United Kingdom started its vaccination campaign, more countries will follow. Also, resilience against vaccination will drop the more difficult the situation becomes.
Think of Germany this winter. The country has been in lockdown mode since November, and yesterday reported almost 30k new cases and close to 600 deaths. Chancellor Merkel’s appeal in the Bundestag for people to protect themselves was nothing short but emotional. The worse it will become, the more people will favor vaccination.
Therefore, the chances are that next year, especially the second half of it, the world’s economy will come back strongly. Fears of inflation exists, but that is something the world can fight using classic ammunition (i.e. economic doctrine).
At this point, the focus is on fighting the pandemic. Investors did have some distractions, like Brexit or the U.S. elections, but the real damage was made by the pandemic. Solving it means recovering to normality.
The chart above shows what normality means for the world. It reflects the 2020 optimism that the pandemic will be over by Q4 2021, and optimism is what humankind needs most right now.