0. Global socio-economic, geo-political developments affecting AEC
Return to March 2021 update
Length: 3.8 min read; 761 words.
Note: The following paragraphs summarize the category of Global socio-economic, geo-political developments affecting AEC (indirectly) observed in March. More information about the specific category from March (and previous months) can be found in the downloaded report(s).The number in square brackets (e.g., [X]) refers to a reference where the reader can find more information about a specific statement. The references can be found in the References list below, Systematized References page or in the downloaded report.
The discussion about this category remained on the same level in comparison to December (17% representativeness in the selected references). From the world of politics, the focus is on Biden’s new administration activities [133], continuous US- China trade tariffs and conflict brought about by the latest cybersecurity attack (on Microsoft) [134], Suez Canal blockage that aggravated existing delays of global supply chains [135][136][137][138]; global politicization of vaccination efforts [13], where Rich states 'block' vaccine plans for developing nations [20]; the US sanctions on Russia over Navalny poisoning and imprisonment and other disagreements [139][140][141]. Biden plans to keep U.S. troops in Afghanistan until November. [142] Russia warns it will 'have to react' if Bosnia moves to join NATO. [143] Of the armed conflicts, Myanmar’s situation intensifies with protests and crackdowns [144][145] [146], with the junta wanting to establish relationships with the West [147]. Hong Kong elections are postponed to 2022. [148] Saudi Arabia’s plans to rule the $700B hydrogen market. [149] The cost of Brexit becomes apparent. Exports of goods to the EU fell by 40% between December ‘20 and January ‘21, while imports dropped by almost 30%. The hit from border frictions will be around 0.5% of GDP in the first quarter of 2021. [150]
Countries are now able to assess the damage to economic growth wrought in 2020 by the restrictions put in place to control the spread of the COVID-19 virus. All GEI-surveyed economies went into reverse gear in the early months of the year; only China was able to control the virus sufficiently to come out of 2020 with positive economic growth (+2.3% year-over-year). The US economy experienced a GDP contraction of –3.5%; the eurozone as a whole contracted –5.4% (flash estimate), with contractions of –5.0% in Germany, –8.3% in France, –8.8% in Italy, and –11.0% in Spain. The Russian economy, propelled by energy exports, experienced a milder contraction of –3.1%; Brazil’s contraction is expected to be –4.7% and India’s –7.7%. [80] OECD predicts that global GDP will grow by 5.6% in 2021, and continue the recovery with 4% growth in 2022. [84] Global stock market remained resilient in the face of the COVID-19 pandemic, growing 20% overall between February ‘20 and February ‘21. Such growth may surprise some, but not smart investors: they understand that markets are built for the long term and that their composition differs from that of the real economy. What is notable, however, are the differences in total returns to shareholders (TRS) among regions despite the global effects of the pandemic. Greater China led the world with local currency returns of 40%, followed by North America and Asia at 22% and 20%, respectively. Lagging behind were the Middle East and Africa (9%), Latin America (6%), and Europe (3%). Causes for regional differences include: a) high tech (one big cause of the regional differences is that Greater China and North America are home to most of the companies that attracted the highest capital inflows in 2020; just 25 global companies accounted for 40% of the increase in global market capitalization; b) industry mix; c) profit expectations; and d) multiples (long-term earnings expectations, as implied in multiples, improved across all regions—indicating further anticipation of a strong post-COVID-19 recovery). the markets expect a strong recovery in all regions, but that each region is on its own trajectory; Greater China’s strong TRS performance can be attributed in part to the fact that it is home to about half of the Mega 25 companies as well as many other fast-growing businesses that offset its presence in other, sizeable slow-growth sectors; North America’s strong shareholder returns can be attributed to the Mega 25 as well as to the fact that it boasts an attractive overall industry mix compared with the other regions. Public companies in the region have been able to grow profits through the crisis; Asia’s TRS is just slightly below North America’s, and while the region is home to only a few Mega 25 companies, its multiples have grown, indicating strong long-term growth expectations; Europe’s story is more difficult: the continent is home to only one Mega 25 company, and it is struggling with an industry structure that is less geared for growth than North America’s. The markets expect Europe’s profit recovery to be the slowest among all regions. [81] As we come out of COVID, we need innovation to help us reach the global goals for 2030. COVID-19 pandemic has compounded the slow progress of achieving the UN's Sustainable Development Goals by 2030. Mass adoption of digital technologies, and increased engagement from the private sector, has the potential to reignite action. Our ability to rapidly adjust highlights our willingness to collaborate and rebuild a more resilient, sustainable world. [82]