2021 Economic expectations and developments:
As we progress into this year, we expect strong growth from 2021 driven by an economic reversion to norms (recovery) contingent on the control of the virus and roll out of the vaccine. Unemployment rates may remain higher than pre-Covid levels as some businesses continue to struggle, emerging from the pandemic and as people remain fearful, potentially curbing overall economic demand.
We expect to see a large push to green energy as countries and consumer vehicle producers make pledges to phase out the consumption of fossil fuel in addition to a renewed focus on climate change, as signaled by the United States re-joining the Paris Accords.
Major areas to look at are interest rates and bond yields. In 2020 we saw a steep decline in both making raising capital using debt much more attractive, and conversely, making capital investments in debt instruments much less attractive. This could be seen by the large rotation into the equity markets which helped fuel the recovery after the large decline in March and April. But in 2021, we have seen an increase in treasury yields. This increase in treasury yields makes investing in debt markets/instruments more attractive and equity markets less attractive. This could be observed by the equity market’s reaction, where it declined as the yields increased.
See Congressional Budget Office’s report from February 2021 here.