Post-corona economy in 2021: Three demand scenarios

A case where the world is back to normal in 2021, shift in consumer preferences due to the “Great Lockdown” and lockdowns rolling over because no cure is widely available are possible scenarios of a post-corona economy, a report said.

While the Bank of America (BofA) Global Economics team is forecasting a steep global GDP decline in 2020 of 2.8 per cent due to the ongoing coronavirus pandemic, the International Monetary Fund last week projected a contraction of 3 per cent, aptly labelling this crisis the "Great Lockdown”, said the BofA Global Research report.

Both forecasters tentatively expect a swift recovery in 2021, with BofA projecting global GDP growth of 6.4 per cent and the IMF forecasting a 5.8 per cent rebound next year.

“Admittedly, assigning probabilities to each scenario is a difficult task, as much depends on the availability of mass testing capabilities, a cure and/or a vaccine for COVID-19,” the report said.

“Yet each one of these outcomes will likely have extremely important macro as well micro economic implications for global markets, including commodities.”

The transportation and hospitality sectors are among the most affected by Covid-19, as the lockdowns have impacted mobility the most. Industrial production contracts less than GDP in many countries, partly because demand for consumer products and other items has held up relatively well during the crisis.

Yet metals consumption is falling sharply for the time being due to slower construction and car manufacturing activity and limited infrastructure spending. Demand for raw agricultural commodities is also taking a big hit, in part due to a connection to corn and sugar-based ethanol fuels and in part as a result of meat plant closures, according to the report.

Metals could be the biggest beneficiary of fiscal stimulus

“In our baseline scenario, global oil demand contracts by 9 per cent in 2020, while global natural gas demand drops by just 0.3 per cent, coal by 4 per cent and electricity by 5 per cent,” the BofA Research report said.

“Consumption of copper, aluminium and steel could fall by 14 per cent, 21 per cent and 24 per cent respectively in 2020 without any fiscal support. Even then, China has already started to implement some and others may follow. Thus metals could end up being the biggest beneficiary from fiscal stimulus and a normalization of economic activity.

“Looking into 2021, oil demand would return to 100 million barrels per day (b/d) in the back-to-normal scenario, 96 million b/d in our ‘corona new normal’ preference shift scenario, and drop to 86 million b/d in a rolling lockdown scenario. The outlook for commodities is discussed at length inside the piece,” it added. – TradeArabia News Service




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