Skip to main content
PGIM Quantitative Solutions LogoPGIM Quantitative Solutions Logo
  • About Us
    • Our Philosophy
    • Our History
    • The Team
    • Diversity, Equity & Inclusion
    • Contact Us
  • All Insights
    • ESG
    • Market Views
  • ESG Overview
    • ESG Insights
    • ESG Policy
    • Stewardship and Governance
  • Overview of Solutions
    • Quantitative Equity
    • Multi Asset
    • PGIM Wadhwani
    • PGIM DC Solutions
  • Client Log In
  • Careers
QMA Global Multi-Asset
Market Views

The Strong but Uneven RecoveryTheStrongbutUnevenRecovery

Apr 16, 2021

5 mins

Share
  • Mail
  • LinkedIn
  • Twitter
  • Copy URL
Download PDF

Share

On the April PGIM Global Partners CIO call hosted by QMA, chief investment officers and senior investment professionals from PGIM's international businesses, PGIM Fixed Income and QMA discussed the factors driving potent economic recoveries in some countries and those that are undermining economic rebounds in others.

The global economic recovery remains on track, although the rebound remains uneven and continues to hit road bumps with periodic surges in COVID-19 cases and new strains emerging. The US and China are at the forefront of the recovery, with China on track to grow around 8.4% in 2021 and US growth expected to come in at around 6%, among the strongest growth rates in recent years.

Even the International Monetary Fund (IMF), whose growth estimates typically trail the market consensus, has upgraded its growth forecast in its April update. The IMF now projects 6% global growth, revised up from 5.2% in its October forecast, and growth moderating to a 4.4% pace in 2022. The IMF's upgrade reflects additional fiscal support and the anticipated vaccine-powered reopening and recovery in the second half of 2021. As the vulnerable population gets vaccinated, economic activities are expected to resume and drive a significant pickup in growth thanks to pent-up demand funded by accumulated savings in 2020. However, the outlook remains challenging, with a multi-speed recovery both across and within countries and the potential for persistent economic damage from the crisis.

According to the IMF, the uneven recovery has been shaped by the path of the pandemic, curbs to mobility imposed to slow the infection rate, and differentials in economic and fiscal policy measures. Output losses have been particularly large for countries that rely on tourism and commodity exports and for those with limited capacity for policy response. Countries that entered the crisis in a precarious fiscal situation had less capacity to mount major health care policy responses, forcing stricter lockdowns to contain the spread of the virus. Further, factors such as the proportion of "teleworkable" jobs, share of employment in small and medium enterprises, depth of capital markets, size of the informal sector,1 and quality of and access to digital infrastructure also played roles in both the downturn and the speed of the recovery.

Among developed economies, the United States is expected to surpass its pre-COVID-19 GDP level in 2021 and Japan in late 2021, while the Eurozone and UK lag and are likely to return to pre-COVID-19 levels only in 2022. The IMF cautioned that occasional lockdowns will likely be necessary at times due to new strains of the virus.

Among emerging economies, China's GDP had already returned to its pre-COVID-19 level in late 2020, but many others are not expected to fully recover until well into 2023. In emerging economies, vaccine procurement data suggest that effective protection will remain unavailable for most emerging markets populations in 2021. Lockdowns and other containment measures may be needed more frequently in 2021 and 2022 in the emerging markets than in developed economies. The IMF expects considerable differences between other emerging markets and China where effective containment measures, a forceful public investment response, and central bank liquidity support have facilitated a strong recovery. Tourism-based economies, such as Thailand's, face particularly difficult prospects considering the expected slow normalization of cross-border travel.

The US economy strengthened further in the first quarter of 2021 with fiscal stimulus boosting incomes in January and March and several states loosening COVID-19 restrictions as vaccine administration ramped up. GDP is expected to have grown at a strong pace, over 5% annualized in Q1, and appears on track to accelerate in Q2 and Q3 2021 thanks to the fresh $1.9 trillion fiscal stimulus package.

QMA Portfolio Manager Ed Keon expects the US to enjoy a booming economic recovery, as reflected in the April jobs report that showed the economy creating more than 900,000 jobs in March, with the biggest job gains in the industries hit hardest by the pandemic, such as leisure and hospitality. In Keon's view, the US could consistently add 1 million jobs per month through the rest of the year, eliminating the slack in the labor market. Business confidence has surged with the Institute of Supply Management manufacturing index surging to 64.7, its highest level since 1983, while the service index rose to 63.7, the highest in the survey’s history. Keon's one concern is that with wage pressures and base effects, inflation will likely run above 2% this year, but whether it will persist is likely to depend on the trajectory of the labor market. If the US uses up the remainder of labor slack, higher inflation could result. PGIM Fixed Income's Senior Multi-Sector Portfolio Manager Michael Collins agrees with Keon's optimistic view of the economic recovery and markets and notes that expectations for a robust economic recovery have become more widespread recently and have caught up with PGIM Fixed Income's expectations of a robust GDP rebound.

The Eurozone economy remains weak in early 2021, with Q1 GDP on track to contract around -3.6% annualized, after a -2.8% decline in Q4 2020, as renewed lockdowns in March disrupted the nascent recovery. However, improved vaccine administration is likely to contribute to a strong rebound in the second half of 2021, with double-digit growth, reflected in the rise in manufacturing PMIs. Japanese GDP is likely to have contracted in Q1, falling -4.2% annualized, as activity struggled due to some temporary and one-off factors. In addition, the shortage of semiconductors was a negative for production of cars and other machinery, though it boosted demand for Japanese chip-making equipment.

China's economy got off to a strong start to 2021 with industrial production, retail sales and fixed asset investment all growing more than 30% in January and February with favorable base effects and continued strength in economic activity. China's GDP is on track to grow more than 8% in 2021. Taiwan's GDP growth is expected to strengthen to 4.6% in 2021, from 3% in 2020, with strong semiconductor demand. In India, the fresh surge in COVID-19 cases put a speed bump in the economic recovery, with the government putting in new restrictions on economic activity. However, the recovery may be delayed but not derailed as the India team does not expect a repeat of the stringent lockdowns seen in 2020. India is on track to a double-digit GDP rebound in 2021.

The Bottom-line: The general consensus on the April CIO call was that the global economic recovery remains on track, though recovery remains uneven across countries, within countries and between sectors. Further, the recovery remains bumpy as periodic surges in COVID-19 cases and new strains force renewed lockdowns, interrupting the recovery. The US and China remain at the forefront of the recovery, with Europe Japan and emerging economies lagging. However, CIO call participants remain positive on the outlook for stock markets as the strong economic and earnings rebound and continued policy support are expected to fuel further gains. Bond yields, after surging on inflation concerns, have stabilized, for now, with central banks reassuring investors that monetary stimulus will remain in place for the foreseeable future. Inflation concerns and the risk of rising COVID-19 cases and new virus strains are likely to keep markets volatile. The upcoming earnings season also carries some risks, with markets likely to punish any earnings disappointment, given elevated expectations and rich valuations.

1 The informal sector, informal economy, or grey economy is the part of an economy that is neither taxed nor monitored by any form of government.
Source: Wikipedia

 

Download PDF
  • About Us

    • Overview
    • Our Philosophy
    • Our History
    • The Team
    • Inclusion & Diversity
    • Contact Us
    • Careers
  • Insights

    • Overview
    • ESG
    • Market Views
  • ESG

    • Overview
    • Insights
    • ESG Policy
    • Stewardship and Governance
  • Solutions

    • Overview
    • Quantitative Equity
    • Multi Asset
    • PGIM Wadhwani
    • PGIM DC Solutions
PGIM Quantitative Solutions Logo
  • Terms & Conditions
  • Privacy Center
  • Accessibility Help
  • Cookie Preference Center

For Professional Investors only. All investments involve risk, including the possible loss of capital.

The content and materials presented here are for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation in respect of any products or services to any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. PGIM Quantitative Solutions LLC (PGIM Quantitative Solutions or PGIM Quant), formerly known as QMA LLC, is an SEC-registered investment adviser and a wholly-owned subsidiary of PGIM, Inc. (PGIM), the principal asset management business of Prudential Financial, Inc. (PFI) of the United States of America. Registration with the SEC does not imply a certain level of skill or training. PFI of the United States is not affiliated in any manner with Prudential plc incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. 

In the United Kingdom, information is issued by PGIM Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square, London, WC2N 5HR. PGIM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom (Firm Reference Number 193418). In the European Economic Area (“EEA”), information is issued by PGIM Netherlands B.V. with registered office: Gustav Mahlerlaan 1212, 1081 LA Amsterdam, The Netherlands. PGIM Netherlands B.V. is authorised by the Autoriteit Financiële Markten (“AFM”) in the Netherlands (Registration number 15003620) and operating on the basis of a European passport. In certain EEA countries, information is, where permitted, presented by PGIM Limited in reliance of provisions, exemptions or licenses available to PGIM Limited under temporary permission arrangements following the exit of the United Kingdom from the European Union. 

These materials are issued by PGIM Limited and/or PGIM Netherlands B.V. to persons who are professional clients as defined under the rules of the FCA and/or to persons who are professional clients as defined in the relevant local implementation of Directive 2014/65/EU (MiFID II). PGIM Quantitative Solutions, PGIM Limited and/or PGIM Netherlands B.V. are indirect, wholly-owned subsidiaries of PGIM. These materials are not intended for distribution to, or use by, any person in any jurisdiction where such distribution would be contrary to local or international law or regulation.

In Japan, investment management services are made available by PGIM Japan, Co. Ltd., ("PGIM Japan"), a registered Financial Instruments Business Operator with the Financial Services Agency of Japan. In Hong Kong, information is provided by PGIM (Hong Kong) Limited, a regulated entity with the Securities & Futures Commission in Hong Kong to professional investors as defined in Section 1 of Part 1 of Schedule 1 (paragraph (a) to (i) of the Securities and Futures Ordinance (Cap.571). In Singapore, information is issued by PGIM (Singapore) Pte. Ltd. (“PGIM Singapore”), a Singapore investment manager that is licensed as a capital markets service license holder by the Monetary Authority of Singapore and an exempt financial adviser. These materials are issued by PGIM Singapore for the general information of “institutional investors” pursuant to Section 304 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”) and “accredited investors” and other relevant persons in accordance with the conditions specified in Sections 305 of the SFA. In South Korea, information is issued by PGIM Quantitative Solutions, which is licensed to provide discretionary investment management services directly to South Korean qualified institutional investors on a cross-border basis.

PGIM, PGIM Quantitative Solutions logo and the Rock design are service marks of PFI and its related entities, registered in many jurisdictions worldwide.

© 2022 PGIM Quantitative Solutions. All Rights Reserved.
 

You are viewing this page in preview mode.

Edit Page