Following what has been among the most tumultuous year in living memory, the Sign of the Times’ first Leader for 2021 looks to preview a series of key questions that will shape the year ahead. In the last year, the coronavirus pandemic infected over 85 million people, killed nearly 2 million people, decimated the global economy1 destroying c.500 million jobs and wiping out 10% (or c.US$3.5 trillion) of global labour income in the first three quarters of the year2 while pushing c.90 million more people into extreme poverty3, and raised global indebtedness by US$19.3 trillion4. Over the course of the last year, the pandemic also exposed deep vulnerabilities of the world’s political, economic, and social systems and a fundamental lack of resilience of many of the world’s most powerful countries5.
While the momentum in the fight against the virus appears to be turning thanks to the rapid development of multiple vaccines, many western countries (including the US, UK and Germany) have started the year with stringent lockdowns (or other major restrictions) in place, with a mutant strain and the holiday season leading to unprecedented caseloads. There are also concerns that a slow, uneven or ‘unscientific’ rollout of the vaccine could result in these restrictions being prolonged, with the pandemic remaining a major risk for much of 2021. Beyond the pandemic, other major issues facing the world – including climate change, income inequality and national populism – have remained unaddressed, and 2020 has largely been a lost year for the world to deal with them. Market players pointing out that the markets are at all-time highs provides no respite to these fundamental issues.
2021 has the potential to be a major turning point for the world as it recovers from the pandemic. As the world looks forward to 2021, the on-going fight against the coronavirus pandemic is clearly the most critical issue that will determine how the year shapes up for most of the world. However, there are a number of other important questions linked to the pandemic – such as the shape of the global economic recovery, political developments in major economies (United States, India, United Kingdom), developments in space and technology and climate change – the answers to which will determine how 2021 (and subsequent years and decades) play out. This month’s Sign of the Times delves deeper into each of these questions and examines the significance of each of them for the world, along with the spectrum of potential outcomes.
The 10 Questions that Will Shape 2021
- Coronavirus, Vaccine-Driven Stability and Predictability?
- The Global Economy, A People’s Recovery or ‘Markets Only’ Recovery?
- US Politics, A More United or (Still) Divided States of America?
- China’s Onward Surge, Unimpeded or Resisted?
- India Back, How Strong the Mandate and Focus on Big Ideas and Big Reform?
- Tech Wars Focused on Data or Currency?
- UN Climate Change Conference, CO2 Contained or Continued?
- EU Intact, Will Britain Chart a Positive New Course or Face the Break-up of its Union?
- Energy Transition, The End of Oil in Sight?
- 21st Century Space Race – Interplanetary Bounds or Terra Firma?
Many other questions, remain of course, including ones related to the Tokyo Olympics, Yemen, Russia, Iran, Israel and the UAE. Any one of these may offer a defining event bringing hope or added uncertainty in a year that the world hopes will see a corner turned from the pandemic.
Three Pivotal Scenarios for the Pandemic in 2021
Much of the whether 2021 will be a positive year for the world, and many of the positive outcomes described above, hinge on the effective mass execution of vaccination programs worldwide.
On closer examination however the assumption that life will return to ‘normal’ this year turns out to be a precarious one, even for countries that have both secured ‘sufficient’ doses of the vaccines and have vaccination programs well underway. Three cases are worth examining:
- Flawless Execution. Taking the base case and applying very simplistic maths, a 12-month case can be constructed. Using the UK as an example, the case detail is based on it having secured enough doses to in theory vaccinate every citizen twice this year (which is the base dosing requirement),28 with a target of administering 2m doses per week. In the best possible case, this implies approximately 50m people being fully vaccinated at the end of the year. With a vaccine effectiveness/efficacy ranging from 70% to 95% (based on the currently approved dosing regiments)29 this implies that on average 65% of the population will have effective virus protection at the end of the year, the low end of range estimated to be required for herd immunity and the stop of community spread.30 Extrapolating this case to other countries, provided that the vaccines confer full protection for at least 12 months, the virus could be effectively eliminated in the epidemiological sense at the end of 2021.
- Imperfect Execution and Invalid Assumptions. The first case hinges on both flawless execution as well as a number of yet unproven assumptions. Firstly, actual immunisations are currently at 250,000 per week,31 only 13% of the target, implying a need for rapid scaling of vaccine packaging, filling, quality assurance and certification, distribution logistics and administration infrastructure. Secondly, with vaccine availability constraining the immunisation plan, doses are being administered singly, with extended time periods between two doses or with patients potentially receiving an unproven mix of different vaccines, all with unknown implications on the effectiveness of vaccine protection.32 Any shortfall in execution or any loss of effectiveness from the best case scenario laid out above would see the country below the 65% population coverage threshold, with continued community spread of the disease through 2021. In this case, more time- and further lockdowns - would be needed leading to significant uncertainty through the year. Moreover, if the vaccine protection duration was 12 months or fewer, the need to revaccinate vulnerable groups as a priority would preclude ever getting to the level of effective population coverage required to stop the virus, eliminating a return to ‘normal’ for the foreseeable future.
- New Strains and Mutation of Virus. This third cases could see further mutations of the virus in a manner that increases its virility, health impact or resistance against vaccines, leading to the collapse of current vaccination strategies in potentially very short order, creating even more significant turmoil over the near term, given the given the knock-on effects the pandemic has proven to have on economies, societies, politics, and even international relations.
Given the scenarios above, the risks to 2021 being a year of recovery remain very real, particularly given that many countries, including the EU as a whole, lag behind the UK in terms of vaccination progress and supply. This gives rise to a series of questions: taking the example above, are there grounds to believe the current UK can deliver flawless execution? With the strong political opposition and anti-COVID/anti-vaccine/denialist factions in the US, can the new administration deliver that in the US? Which other countries will also fail to deliver, given supply constraints, vaccine hesitancy, and the many, many other variables and risk factors? Who will win if others fail? And, perhaps most importantly, what will the broader political, social and economic implications of anything other than perfect execution by the world’s major countries be?
So, a smooth recovery in 2021 rests on governments showing the ability to execute flawlessly or adapt rapidly and manage changes to the situations they face, something that the leading Western nations, and many others major countries like Russia and Brazil are not managing to do currently. Asia has done far better. 2021 therefore remains a year with real downside risk and requires a far more mature, and disciplined approach to the pandemic if it is to be the transition year to normality.33
Reflections on the Year Ahead
Although the risks are real and significant, the path to a positive outcome are clear. However, the variables are such that it calls for huge collective and individual efforts, risk management and survival skills to succeed.
So, the outlook for the year ahead, needs to be tempered with some more reflection:
- 2021 Remains a Year of Uncertainty. The uncertainty from 2020 has carried over into the new year, making it impossible to accurately predict the world’s likely path. The big questions on the nature (or rather effectiveness) of American leadership in the world, whether the pandemic is defeated, contained or returns in a mutated form to destabilise the world again and the speed and scale of the recovery are all part of the risk profile of the world. While market pundits speak of sustained bull markets or bears waiting to stop the run, the actual outcome for the world ranges widely, from a sustained global economic recovery and potentially the start of a ‘Great Transformation’ on one end34, to another ‘lost year’ on the other end.
- Fundamental Cracks in the International Leadership by the West Strains the World. The fundamental cracks that were exposed in 2020 that led to riots and protests in the US, normally reserved for fragile nations, disproportionate deaths in the advanced healthcare systems of the West and the disenfranchisement of international institutions such as the WHO cannot be overcome by a re-engaged America under President Biden. The world order is likely to be strained by the uneven recovery through vaccinations, the on-going conflict with China and the continued divisions in the US.
- Rising Markets Alongside the Destruction of Value in Industrial Era Sectors. The fundamental cracks that were exposed in 2020 in sectors that could not adapt to the new locked down scenario is likely to continue with retail, physical entertainment and travel seeing a permanent downgrade in their current form. In parallel, the boom is likely to continue based on sectors aligned to a future that serves digitally, distributes and diversifies investors, in particular provides food and essential services, meets pent-up demands and facilitates new enterprise. Capital can be expected to flow, tram-like, along these trend lines while risks continue to arise and drive volatility, providing ample opportunity to take liquidity along the way for the agile, and sudden wins and losses throughout the year.
- Winning Regions and Countries will be Those that Chart Their Own Course. Winners across countries, industries and markets will be those with the stability and flexibility to chart their own course in 2021. East Asia and China in particular are set for strong growth in 2021 given how well they handled the pandemic, demonstrating their disciplined approach to life in general translated well to major crisis and risk events, a far cry from the Asian Financial Crisis in the late-1990s. Similarly, with their well-managed response to the pandemic and their deep pools of sovereign capital, Canada, Australia, the UAE and Qatar also well positioned to deploy their capital strategically in a high-risk year. While the US looks socially and economically damaged and in transition, its markets remain strong and likely to be a beneficiary of capital flows.
- Losers will be Those Distracted by Smaller Issues and Infighting. Those who are distracted, ideological, preoccupied with in-fighting (or just fighting), or exercising self-harm, stand to be losers during the next year. The United States risks being among this group given the extreme partisanship there, as does the UK picking up the pieces from Brexit. Latin America (particularly Brazil) and potentially Russia, which are still struggling to control their viral outbreaks, also stand to lose out. Large swathes of ordinary citizens stand to be losers in all of these countries, at the mercy of governments that fail to deliver on their responsibilities.
- Slow and Steady Recovery for Stable Nations, Followed by the Rest. Much of the world has proven it is willing to follow a regime that saves lives and maintains social cohesion. These economies stand to recover first. While Europe is currently struggling to control its winter outbreak, the escalating restrictions being put in place alongside the vaccine roll-out underway will increasingly stabilise the region and allow a slow and steady path of regrouping, despite the potential for further uncertainty along the way. Regions like the Middle East and India are likely to follow a similar path given their current positioning. Ultimately, others will have no choice but to deliver to their people and recover.
- Sustainability Rises on the Agenda and a More Responsible Capitalism Starts to Emerge. For much of the year, the broader topic of sustainability took a back seat to the pandemic in terms of business and government leaders’ agendas. With a potential end to the pandemic in sight, sustainability is likely to re-emerge at the centre of global corporate agendas in 2021, with further trillions of US dollars to be committed for sustainable investments or for investing strategies that integrate enhanced environmental, social and governance (ESG) factors. The value of global assets considering ESG factors in investment decisions has almost doubled over four years, and more than tripled over eight years, to US$40.5 trillion.
- Opportunism, Risk Management and a Proper Focus on Survival Strategies are Key to Success. 2020 has proven that events, and their unintended consequences, can rapidly overtake conventional wisdom and market consensus. At the beginning of the year, China appeared to be the country most at risk, Trump looked to win the US election and lockdowns were expected to result in sharp equity market corrections. The year ended with China positioned better than all major powers, Trump lost the election by more than seven million votes and global equities breached their all-time highs. Similarly, the current market consensus, of endless liquidity-supported equity markets and of a resurgent China, could rapidly come unglued depending on how events evolve, and the decisions leaders take in response.
In many ways, the pandemic is a watershed event for the world that has exacerbated existing issues and thrown light onto new ones on the one hand, while also revealing elements of what could be the solutions to some of the world’s challenges on the other hand. So, while the virus has exposed a lack of emergency preparedness and underfunded healthcare systems, it has also highlighted the world’s potential to execute rapid transformation across healthcare systems, the environment, global supply chains, social norms and behaviours, and industrial models. Moreover, with nearly US$20 trillion in Covid-19 stimulus committed thus far, it has highlighted that the world can finance anything given adequate motivation, and it has therefore shown that the world’s problems are ultimately solvable.
If the world can learn the lessons from 2020 well enough, 2021 can become the year that kicks off a sustained transformation of the world for the better, to a world that protects the biosphere and cares for the planet, creates sustainable growth and economic opportunities and shows compassion for all, addressing inequality and helping those least well off in a systematic way. As much of the world starts the new year in a spiking wave of infections and increasingly strict lockdowns, the possibility of a far better world is a bright spot to work towards in the year ahead.
Best Wishes for peace, prosperity and freedom in the year ahead
- Global GDP is expected to contract by -4.3% in 2020 vs. a pre-pandemic projection of 3.4%; Source: IMF World Economic Outlook, January 2020 and October 2020
- Source: International Labour Organisation, Sept 2020,
- Source: World Bank: ‘Poverty and Shared Prosperity 2020, Reversals of Fortune’
- Source: S&P Global Market Intelligence 19 November 2020
- See the April 2020 Sign of the Times
- Assuming that the current version of the vaccines available provide sufficiently long durations of immunity.
- Assuming the widespread approval of the AstraZeneca/Oxford University vaccine. Without this, global production will only cover c.1 billion people. Source: https://www.nature.com/articles/d41586-020-03370-6#:~:text=But%20the%20makers%20of%20the,is%20administered%20in%20two%20doses
- Source: WHO
- Source: The People’s Vaccine Alliance
- Source: nature https://www.euronews.com/2020/12/09/which-parts-of-europe-are-likely-to-be-most-hesitant-about-a-covid-19-vaccine
- Source: MSCI World Index
- Source: World Economic Forum
- Source: Reuters / Ipsos Poll
- Source: Fitch Ratings
- Source: IMF
- Source: IMF
- Source: Reuters, https://www.reuters.com/article/us-china-economy-s-p-idUSKBN27I1B3
- Source: Various press articles
- Source: Morgan Stanley
- Source: The Economist
- Source: Bloomberg Economics
- Source: Allianz
- Sources: IMF World Economic Outlook Oct 2020, World Bank
- Source: IRENA
- Source: Euroconsult Research
- Source: NASA
- Source: BBC https://www.bbc.co.uk/news/health-55488724
- Source: UK Medicines and Healthcare products Regulatory Agency
- Source: WHO
- Source: UK National Health Services, based on week ending Dec 27th, 2020
- See https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)32661-1/abstract
- See the May 2020 Sign of the Times: The Coronavirus Pandemic Part II: Waging the War
- See the July 2020 Sign of the Times: The Coronavirus Pandemic Part III: The World Emerging from this Crisis