Rethinking 2021 – By Ingo Plöger, President, CEAL Brazil

If this year has been completely atypical, what will next year look like?

This is the most frequently asked question, and one for which we try to find suitable answers.

The exit from the pandemic already shows its contours, and while we await the vaccine, uncertainties are still significant and we find ourselves faced with several alternatives. We are in the habit of planning on the Gregorian calendar, so we already know how 2020 will end. But for the year 2021, we want to make our projections, only that the pandemic does not end on December 31 this year.

So, we need to risk some scenarios, with a great chance of making mistakes:

Health: Still without a vaccine, the world will go around in circles trying to contain the contagion. In Europe, the second wave may bring a partial lockdown. In the southern hemisphere, the drop in fatalities is evident, still reflecting wave 1. The U.S. will still have a high number of cases, while China appears to have control. The probability of vaccines being applied is only seen in 2021. Vaccination will first be given to high-risk groups, health professionals, public security, essential services, the elderly and then to the general public. It could last the entire year of 2021, and into 2022. After all, we are 7.6 billion people! The effectiveness of vaccines will be different and may require revaccination.

Politics: U.S. elections, probably Democratic, major change in style, but not in essence in relation to China. Reactivation of some central themes such as TPP, the Paris Agreement. Another relationship with Latin America.

Elections in Bolivia, Brazil, the Chilean constitution, marked by the social issue and pandemic.

Europe, elections in Germany, France will mark the left-right polarization. The European Union under pressure, a central position in the Green Revolution, more national, less global will be a long-term trend.

China will strengthen its position of manufacturing the world with the addition of digitalization. Huawei and 5G will be the currency of exchange for investments and imports. Growth in China will be greater than 2020, and will impose a new scale in sustainability. India will grow beyond 2020, but unknown how it will manage the pandemic. The Middle East will remain in tension, but more articulated between Israel and Saudi Arabia and Egypt.

Economy: After the pandemic, it will still be under strong social and business assistance, to reduce the social and unemployment impacts. Deficit spending and monetary easings will increase indebtedness in relation to GDP. Risks of systemic default may arise from Japan, which has the highest indebtedness by GDP (+ 250%). The international reserves deposited in the U.S. and Europe will be used in part in this scenario and the most affected will be China and the developing countries whose reserves are allocated in these countries. The appreciation of the U.S. dollar will continue, instability in the stock exchanges, but growing through digitalization, new companies and M&As. There will be growth in demand for commodities, food, energy and minerals. China’s demand will raise relative prices. More regional, less global investments will raise FDI indicators in developing countries. Decentralization of production will be greater.

Travel will still have restrictions that will affect international mobility, tourism, events, exhibitions and will be only partially replaced by virtual alternatives. The IT sector will have impulses of innovation with acceleration of the digitization of processes. Health, education and virtual entertainment will benefit. Real estate will have investments and divestments due to the pandemic and labor mobility.

International growth may be around 3% starting from the low base of 2020. China will be the stimulator of this growth with + 5%, USA + 2%, EU + 1.5%, India + 5%, Latin America + 2%, led by Brazil + 3%, and South America without Brazil + 2%, Mexico + 1%. 

The 2020 losses will not have recovered yet.

International cooperation is at its lowest level since World War II. Mutual aid in the field of health was extremely low, human solidarity was shown much more in the domestic field than in the international field. Trade conflicts were accentuated, both in the field of trade restrictions and in the execution of agreements. The implementation of agreements such as Mercosur and the European Union were put on hold, as well as those regarding the expansion of the OECD, renewal of the WTO, among others. The radicalization of environmental issues is on the rise, as well as issues of prevention of social distance, strict security protocols. 

Social tension has increased a lot, which reduces the harmonic predisposition between people and their institutions. These increased frictions will reduce the effectiveness of relationships at both the family, business, institutions and policy levels. Much energy will be expended in maintaining healthy relationships.

In 2021, Latin America, despite all problems, will have more investment opportunities, mainly in the area of infrastructure with regard to private participation in the field of energy, mobility (airports, ports, highways) and digitalization infrastructure (5G auctions), among others. The demands for food in the domestic and international fields will keep agribusiness on the rise.

Governments will face huge challenges of maintaining economic stability while meeting the minimum social demand. The limit is on fiscal discipline, although the pandemic does not have a Gregorian calendar, the pressure on governments to keep their spending contained in 2021 will continue, and on the other hand not to destabilize the poorest populations is the art in economic credibility that investors hope for. Governments that act more in the direction of private participation will have the advantage of attracting investments, while those that choose to prioritize government participation to make their economic policy will have problems. While multilateralism is seeking renewal, Latin America may be part of this innovation through the integration of biomes, educational integration in digitization, health, mobility between countries and energy integration. Capital will not be lacking for this effort, multilateral institutions exist, all that is missing is the political will of the leaders involved to seek these options in the integration of this continent.

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