In 2021, economic growth patterns of various countries are likely to once again diverge strongly. In our Chart of the Week, we compare the current status of Covid-19 vaccinations with growth forecasts for the current year. That issue is very much in the headlines these days, not least given the recent decisions of various European countries to suspend the usage of one of the vaccines. As an attentive reader might well object, however, there are many more factors than just the pace of vaccination that determine the economic outlook for 2021. For example, both the extent and the distribution of benefits of the various fiscal stimulus programs vary. The pace at which the U.S. Treasury distributes money to households and other economic agents is no less breathtaking than the pace of U.S. vaccinations. Another factor is simply the starting point. Countries that had to weather a particularly severe slump in activity last year can be expected to boast higher growth rates during their recovery compared to those countries that got off relatively lightly in 2020 such as the United States.
Nevertheless, the contribution of rapid vaccination to the economic outlook should not be underestimated. For example, the latest economic indicators from the United States clearly show that both private households and the corporate sector are already roaring to restart the economic engine and ready to put the pedal to the metal once the easing of restrictions takes place. Unfortunately, there is still little evidence of this kind of optimism in Europe.
From an investor's point of view, this divergence could provide opportunities, for example in currency markets. There, fiscal stimulus, U.S. economic sentiment and vaccination progress are all pulling in the same direction. After a phase of pronounced U.S. dollar weakness in the second half of 2020, during which one could already read obituaries for the U.S. dollar, the greenback has recently been able to strengthen again. Stefanie Holtze-Jen, Head of Currency Strategy at DWS, therefore expects the U.S. dollar to continue to appreciate, with progress on vaccinations being just one argument in favor of the U.S. currency.
Sources: Ourworldindata.org and DWS Investment GmbH as of 3/16/21