Defining trends in 2021: What to expect with respect to global macroeconomic and business environment

We are about to enter into 2021. And with some optimism as we finally have vaccines to tame #coronavirus. However, there are many challenges ahead when it comes to global and Indian economies. Given this backdrop, it would be interesting to analyse and speculate about what would be the defining trends of 2021 with respect to Indian and global macroeconomic and business environment. Here’s what I think:  

The first and foremost is of course, the much awaited corona vaccine. It’s finally out and hopefully we’ll be able to say good bye COVID19 in 2021. With this, the major downside risk to the global economic growth now seems more or less over. The production and distribution, and politics around that will continue to dominate 2021.

Second, many (including myself) would want to think that the defeat of President Donald Trump is beginning of the end of populists who tend to offer simplistic solutions to complex economics problems such as decline of manufacturing. I do expect, some sanity returning to global trade. However, geopolitics and not sane economics will continue to dominate the world in 2021 especially in India, China and the US.

Third, with the democrat Joe Biden in the US presidential office, one can expect things to normalise between Iran and the US, and to an extent between China and the US. Thus, we'll have less probability of the US-China tension over Taiwan going out of hand leading to a full-fledged war between the world's superpower and its challenger. Improve global peace will be a positive for the global economy.  

Fourth, climate change will be in focus again after President elect Joe Biden said that his administration would make the US rejoin the Paris Accord on Climate Change. Along with the decreasing prices of solar cells and modules, and faster improvement in charging infrastructure for electric vehicles, this is not good news for thermal power producers and conventional ICE vehicles respectively. New cars and vans powered wholly by petrol and diesel will not be sold in the UK from 2030. Many other countries will consider similar legislations in 2021. India already is penalising makers of conventional automobiles vis-a-vis those of electrical vehicles through differential taxation and subsidies. Prohibitive taxation on diesel and petrol vehicles are already capping demand in a slowing economy.   

Fifth, the comparative disadvantages of small businesses (SMEs) vis-a-vis large corporations is likely to increase in 2021 onwards. Small businesses are already troubled by pandemic induced demand slump, cumbersome compliance requirements, relative lack of access to cheaper institutional finance and higher effective taxation in developing countries like India. As a result, inequality and concentration of economic power will continue to increase. This will thwart attempts to revive consumer demand which remains the major driver of economic growth.

Sixth, with increasing focus on work from home in the post corona world, industries such as aviation, automobile, hospitality and tourism, and commercial real estate will continue to struggle while futuristic industries such as electronics/semiconductors, electrical vehicles, IoT and digital economy in general will do better in 2021, both globally and within India. The streaming and video-on demand platforms will continue to grow rapidly and cause further disruptions in both Bollywood and Hollywood ecosystems.

#BigIdeas2021

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Please share what do you think will happen in 2021 when it comes to macroeconomic and business environment. Please feel free to share your thoughts and views even if they differ from mine. You can get in touch with me on Twitter @RiteshEconomist

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My last year’s piece: Politics and protectionism to dominate Indian economy in 2020 can be read here.