From an economic perspective, most of the current figures continue to look worse, especially in developed economies including the United States. The US job market, retail sales and real estate figures have deteriorated for the first time since last April.
In Europe, many economic activity indicators, especially in the service sector, also contracted at the end of 2020. In Japan, some economists think that we could see spending numbers shrink to a double-digit level this quarter. Only in China, that the strong economic growth in the fourth quarter is registered.
Of course, the main cause has been the reimposition of serious curbs on economic activity including lockdowns in some cases, following the new Covid-19 outbreak, as infections worldwide approach 100 million and deaths exceed 2 million. The restrictions have been especially tight in France, Italy and Britain, and also in parts of the US and Japan.
Looking ahead, though, most economists and analysts have more hope. They point to two main factors: a new US president and advances in vaccination. Joe Biden has wasted no time outlining an ambitious agenda for his first 100 days, including a new $1.9-trillion round of stimulus programmes.
The stimulus includes giving away $2,000 to millions of eligible low- and middle-income citizens and increasing the unemployment benefit to $400 a week through September. Mr Biden also proposes to raise the hourly minimum wage to $15 from $7.25. This has led many economists and strategists to sharply upgrade their forecasts for US economic growth this year.
VACCINE OPTIMISM
On the vaccination front, Washington is expected to approve the AstraZeneca vaccine, which is already in widespread use in the UK, India and elsewhere. This news, combined with continuous acceleration of distribution and vaccinations in the West, has led authorities to set targets to vaccinate as many of their people as quickly as possible. In Europe the authorities aim to have 70% of the total population protected by the middle of this year.
Given these two important factors, it is the consensus view that the global economy in the second half of this year will recover strongly. Economists and strategists see a significant boost coming from Mr Biden's enormous economic stimulus, especially the cash giveaway, increasing welfare for the disadvantaged and the acceleration of green infrastructure projects promised by the new president.
A further boost will come from growing pubic confidence as more people receive vaccinations, which should see a release of pent-up demand for products and services, especially in leisure and travel, which could help the global economy to soar. In short, the future is bright.
Though we believe that these views have some grounds, we also recognise the associated risk. In our view, the belief that gigantic fiscal stimulus, including cash transfers, will lead to a strong rebound this year is somewhat overestimated.
Empirical evidence indicates that giving away money will be effective if the economy is in crisis, as it was last summer, but if the economy is on a path to recovery, the effectiveness of a giveaway to provide a further boost is reduced, especially if the resulting fiscal deficit has to be financed by tax increases in the future.
If that is the case, people will tend to save money (to pay future taxes) or pay down old debts rather than spend now. In economic jargon, this is called "Ricardian equivalence".
REGULATORS GET TOUGH
Apart from that, tighter financial regulation under the Biden administration could mean that the market should prepare for a new era of tougher oversight and stricter rules.
The people the president has chosen to head the Securities and Exchange Commission and the Consumer Financial Protection Bureau are seen as more interventionist than their predecessors.
For example, regulators might move to impose curbs on online trading platforms; a tougher version of the so-called Volcker Rule, which prohibits banks from conducting certain investment activities with their own accounts; closer regulation of cryptocurrency trading, among others.
And if American financial authorities begin to impose more stringent rules on their country's financial industry, it is likely that other authorities will follow suit, to varying degrees.
There are also other risks, including new mutations of the coronavirus, which may become more resistant to vaccines in the future.
There is also the question of how confident consumers and businesses will really feel, even if vaccination programmes turn out to be a big success, given growing household and private-sector debt.
While in the near term, the picture seems very bright, further risks may arise in the longer term.
Unrealistically high expectations for fiscal policy, the rise of inflation expectations, stringent financial rules, a delayed vaccination rollout and the risk of virus mutations are all things to worry about in the future.
In the meantime, the rosy economic and investment picture is still visible on the horizon. Enjoy it while it lasts.
Piyasak Manason is senior vice-president and head of the wealth research department at SCB Securities, email piyasak.manason@scb.co.th
