Captain America – 100 days to save the US; China among the winners of the pandemic; Allianz Risk Barometer 2021

Among this week’s events to remember is certainly the inauguration of President Biden in the U.S. We seized the opportunity to cast light on the enormous stimulus package he promises and its impact. We also saw the release of the latest GDP figures for China, illustrating that the world’s economic center of gravity has firmly been shifting east-wards. And the Allianz Risk Barometer ranks the major business risks worldwide as viewed by experts. Plus a batch of updated country risk reports for the Latin/Middle America.

President Biden's inauguration: 100 days to save America?

On 20 January, Joe Biden took over as the 46th president of the US with the promise of a USD1.9trn stimulus package and a plan to distribute 100 million vaccine doses in his first 100 days.

• According to our calculations, the latter goal is largely achievable, matching the pace of distribution observed in the US during the last week. In the last seven days, the US has indeed reached a vaccination rate of about 1 million per day (0.3% per day). The path to herd immunity in Q3 2021 is thus well underway in the US.
• When it comes to 'Bidenomics', we believe a softer stimulus (USD 1.2 trillion) is more likely to pass the Congress hurdle. In this central scenario (60% probability), President Biden is likely to secure sufficient support for most of the plan, including stimulus checks of USD1,400, but would have to compromise on the extent of local and state support.
• Growth would reach +4.1% y/y in 2021 and +3.4% y/y in 2022, against +3.6% y/y and +3.1% y/y, respectively, in our current scenario.
• We remain convinced that the potential of growth of the US economy will be negatively impacted over the medium-term, declining from 2% y/y in 2020 to 1.4% y/y at the horizon of 2030, whatever the size of the stimulus to be eventually voted by the Congress, mainly because of an excessive accumulation of public debt (expected above 160% of GDP at the horizon of 2030).
• We calculated that doubling the minimum wage, that we consider as not being achievable in the very short-term, could lead to average inflation of 4% y/y between 2021 and 2026.

You can find our full assessment of the situation here.

The world is moving East, fast

China’s GDP growth for 2020 was published this morning, and came in at +2.3% y/y. While this is a marked slowdown from previous years, China is likely to be the only major economy in the world to post positive growth in 2020. In our latest note, we look into the role of Asia in the post Covid-19 global economy.

• The Covid-19 crisis could accelerate the shifting global balance towards Asia. We computed the world’s economic center of gravity (WECG) and found that it has been moving eastwards towards Asia since 2002. Looking ahead, with the Asia-Pacific region set to recover sooner from the Covid-19 crisis, the pace of this movement could be 1.4x faster than previously expected. By 2030, we forecast the WECG could be located around the confluence of China, India and Pakistan. In comparison, it was located in the Atlantic Ocean until 2007.
• China is a relative winner in the post Covid-19 world, with its GDP winning two years over developed economies (compared to the pre-crisis long-term path). China emerged from the Covid-19 shock earlier than the rest of the world and authorities are already planning for the long term. Indeed, we now expect China to catch up with US GDP in 2030 instead of 2032, as expected at the end of 2019.
• This context, along with free trade agreements, will help strengthen Asia-Pacific trade integration. Intra-regional trade represents a large share of the region’s total trade (74% on average in the 2010s) and the relatively high complementarity between economies’ trade suggests that this situation is likely to be sustained. The recently signed Regional Comprehensive Economic Partner-ship sends a strong signal in favor of continued and strengthened trade integration in the region.
• Which countries would benefit most from further regional trade integration? China, South Korea Singapore and Japan. Looking at export specialization and competitiveness and trade complementarity within the region, we find that exports from China, South Korea Singapore and Japan are particularly competitive and complementary with the rest of the region. China and Japan clearly exhibit higher competitiveness in the most-traded sectors globally.
• What does this mean for policymakers and companies? The challenge will be to navigate this gradually shifting balance in the global economy, and more specifically the US-China rivalry. For many economies (e.g. the EU), the aim will be to define a commercial strategy with Asia while preserving the alliance with the US. Companies should pay attention to the potentially differing competitive environments across regions as trade agreements in Asia-Pacific sometimes have less restrictive standards. From a sectoral perspective, expect further trade and investment integration in mechanical appliances and electrical equipment in Asia.

Please find the comprehensive analysis here.

Allianz Risk Barometer 2021

The 2021 edition of the Allianz Risk Barometer is here, outlining the major business risks worldwide for the next 12 months. Based on the insight of 2,769 experts – such as chief executives, insurance leaders, and risk managers – from 92 countries and territories, the survey by Allianz Global Corporate & Specialty (AGCS) identified the following business risks; and while the current pandemic continues to have a “firm grip” on society, scenarios such as a global-scale cloud outage or cyberattack, natural disasters driven by climate change, or even another disease outbreak, are things companies need to be prepared for:

1.      Business interruption, up from 2020

2.      Pandemic outbreak, up

3.      Cyber incidents, down

4.      Market developments, up

5.      Changes in legislation and regulation, down

6.      Natural catastrophes, down

7.      Fire/explosion, down

8.      Macroeconomic developments, up

9.      Climate change / increasing volatility of weather, down

10.  Political risks and violence, up

The full report can be found here.

Country risk updates

Updated country risk reports for a set of countries in Middle and Latin America:

Uruguay, Rated BB2 (medium risk for enterprises): Quickly back on the growth track

Bolivia, Rated D4 (high risk): The challenge of returning to political stability amid bleak recovery prospects

El Salvador, Rated B2 (medium risk): No recovery without the US…

Panama, Rated BB2 (medium risk): A post-Covid recovery is on the horizon.