Deutsche Bank expects global GDP to return to pre-virus levels next year, it warns about challenges to economic recovery.
Deutsche Bank, in a report titled “Hope on the Horizon” released on Wednesday, updated its global growth outlook for 2021 but warned that two challenges could impede global economic recovery from the market crash caused by the coronavirus pandemic.
Hope for Economic Recovery
The update was due to what the bank called “incredibly positive” news. This is in reference to the announcements made over the past few weeks by pharmaceutical companies Pfizer Inc (NYSE: PFE), Moderna Inc (NASDAQ: MRNA) and AstraZeneca Plc (LON: AZN) that their Covid-19 vaccines have been found to be highly effective in late-stage trials.
Biotechnology firm Moderna revealed that preliminary clinical trial data showed its vaccine was more than 94% effective in preventing Covid-19. The vaccine candidate which can be stored for up to six months at negative 4 degrees Fahrenheit, consists of two injections, 4 weeks apart.
US-based Pfizer in collaboration with Germany company BioNTech announced on 9th November that their vaccine candidate was “more than 90% effective”.
British company AstraZeneca working with Oxford University has also had a measure of success in finding a vaccine. The pharmaceutical giant announced that its vaccine candidate was at least 70% effective. The vaccine’s efficacy is still under scrutiny as of this writing.
Two Major Challenges
Deutsche Bank, however, warns that two major challenges could overshadow this recovery.
The first challenge stems from problems related to slowing down the spread of the coronavirus. These include possible delays in vaccine production and distribution and general acceptance by the public. Pfizer and BioNTech’s candidate, for example, requires a storage temperature of minus 94 degrees Fahrenheit and requires special storage equipment and transportation. This could make it very difficult for some countries to distribute the vaccine.
The bank expects vaccination to begin by the first quarter of 2021 in developed countries and to spread to other parts of the world by the second quarter.
It, however, expressed uncertainty concerning the public’s acceptance given the recent rise in anti-vaccine movements and misinformation.
The second challenge to global economic recovery is the possible financial disruption resulting from the aggressive action taken by financial institutions especially in developed economies to counter the economic effects of the pandemic.
Deutsche Bank researchers point out that this potential risk could stem from “the growing overvaluation of assets and mounting debt levels driven by the necessary extremes to which monetary and fiscal policy stimulus have moved”. The researchers added that in the past, financial crises have often been triggered under such conditions by “the inevitable shift from policy ease to policy tightening, which is likely still at least several years away, but could surprise sooner”.
Deutsche Bank Maintains Market Views
The bank maintained its market view from the previous report that the S&P 500 (INDEXSP: .INX) is “fully valued” and that this could result in a period of European equity outperformance.
Deutsche Bank asserts that global GDP will return to its pre-virus levels in the second quarter of 2021 and is expected to contract by 3.7% in 2020. The US and the Euro Zone economies are expected to trough by 3.6% and 7.4% respectively with China booming by 2.2%.
The institution predicts that the US economy will grow 4%, the Euro Zone economy will rebound by 5.6% and China’s economy will gain 9.5% in 2021.