The coronavirus outbreak has tightened the supply side of the economy, geopolitics and trade wars are affecting supply chains, and the policy response this crisis has resulted in a large increase in global money supply.
Additionally, the weakness in commodity prices was only short-lived. ANZ Research expects many commodity prices to continue rising.
As a result, inflation surprises have not fallen this crisis the way they did in the GFC. Ongoing low inflation is the central case, but the risk profile around that central case has shifted.
The timing and specifics of COVID-19 vaccines are also becoming more relevant for the outlook. In fact one reason for a recent upward revision to ANZ Research’s China GDP forecast is the expectation China will have a vaccine available by year-end.
It seems sensible to think of a vaccine in non-binary terms, in the sense it seems unlikely a vaccine will offer complete protection against COVID-19, have no side effects, and be available to all the world’s inhabitants quickly.
But as confidence around the timing of vaccines continues to solidify, we expect significant positive impacts. Governments will be in a better position to calibrate both the scale and timing of policy responses. Businesses will also be better able to calibrate both an end to the crisis, and how much ‘living with COVID-19’ will be required even after vaccines are broadly available.
A widespread availability of vaccines is also likely to be associated with an increased focus on some of the structural shifts of the COVID-19 crisis. The pandemic has accelerated positive trends in addressing climate change, and negative trends on geopolitics. Inequality has deteriorated. And the technology sector has been a mechanism for change.
While the recovery from the worst of the COVID-19 crisis seems to be entrenched, and the timing of broadly-available vaccines is likely to continue to solidify, the post-pandemic economic landscape is likely to be materially different.
Richard Yetsenga is Chief Economist at ANZ