Deutsche Bank is optimistic about the 2021 economic recovery but warned that there are still risks that can stain this outlook.
According to the bank's latest report “Hope on the horizon,” the calls have been updated because of “the incredibly positive” coronavirus vaccine news in recent weeks.
Pharmaceutical giants Pfizer, Moderna, and AstraZeneca have announced that their vaccine candidates were highly effective at combatting 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 noted. “By the end of 2021 it may no longer have much impact on day-to-day life,” he added in the report.
Deutsche Bank also said that “it is likely that global GDP (gross domestic product) will return to its pre-virus levels in the second quarter of next year.”
They predict that the global GDP will contract by 3.7% in 2020 with the U.S. economy dropping by 3.6%, the eurozone posting a contraction of 7.4%, and China growing 2.2%.
Deutsche Bank sees the U.S. economy growing 4% in 2021, the eurozone economy to recover by 5.6%, and China’s economy to gain 9.5%.
According to the bank, there could be widespread vaccination by the first quarter of 2021 in advanced economies, and this could further be available in the second quarter. Yet, it said, “the big unknown is whether the population will accept to be vaccinated and if the vaccine may be made mandatory.”
“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 said.
“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.
Moreover, Deutsche Bank said that its market views remained the same as in the previous 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.”
JPMorgan on 2021 economic recovery
However, financial services firm JPMorgan has warned that the US economy would shrink by the first quarter of 2021.
The investment bank claimed that the US gross domestic product (GDP) will become negative by the start of next year as US citizens await the distribution of Covid-19 vaccines.
In a client note, JPMorgan economists wrote that “This winter will be grim…and we believe the economy will contract again” in the first quarter of 2021.
Despite posting a record annualized growth in the third quarter, the US economy is drastically losing its momentum. The company expects the GDP to fall to a slow growth of 2.8% in the fourth quarter and eventually contract by 1% during the first quarter of 2021.
