Introduction.

The year 2020 will be remembered as the year of the great lockdown, with COVID-19 bringing the world to a grinding halt. The global economy slowed, countless lives are lost and everything from business revenues to profitability plummeted. With all this in mind, one can expect a few things from 2021. This list is not exhaustive but identifies key trends across development that will make or break countries in 2021.

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Source: International Chamber of Commerce.

1). Oil Prices Will Recover: Several countries have begun the process of inoculating citizens against the virus. These include but are not limited to the UK, Europe, and the United States, and some Asian states such as South Korea and Taiwan. In line with global vaccination schemes, economic activity will resume and borders will re-open. Higher demand for crude oil for planes, cars, and homes will support recovery. This will be further driven by the oncoming recovery in economic activity, which will be slow and gradual. Oil prices will likely average $50 — $55 per barrel in 2021. This will be drive-by OPEC output restrictions, a mix of geopolitical uncertainty, and higher demand for petroleum products. This will benefit CEMAC member economies, a majority of whom are commodity exporters. …


Introduction.

The COVID-19 pandemic has rattled financial markets, caused a protracted slowdown in the global economy, and accelerated structural trends such as digitization, automation, and aging demographics across advanced economies. As the pandemic ravaged through economies, it equally caused a broad-based decline in currencies across developing and emerging market economies. This depreciation was driven by a deteriorating global picture, lower external demand, and weaker oil prices. This was accentuated by a stronger dollar, which appreciated after its haven properties were triggered and a surge of inflows into the U.S; treasury’s provided support for the “greenback”.

A case is the Franc CFA, a currency pegged to the Euro which is the main instrument of exchange in the CEMAC region. This includes Cameroon, Chad, the Central African Republic, and Congo. Rep, Equatorial Guinea, and Gabon. The chart below provides an illustration of developments in the CFAF, which waxed and following the COVID-19 pandemic. …


Introduction.

The COVID-19 pandemic has rattled financial markets, caused a protracted slowdown in the global economy, and accelerated structural trends such as digitization, automation, and aging demographics across advanced economies. As the pandemic ravaged through economies, it equally caused a broad-based decline in currencies across developing and emerging market economies. This depreciation was driven by deteriorating global conditions, lower external demand, and weaker oil prices. This was accentuated by a stronger dollar, which appreciated after its haven properties were triggered and a surge of inflows into the U.S; treasury’s provided support for the “greenback”.

A case is the Franc CFA, a currency pegged to the Euro which is the main instrument of exchange in the CEMAC region. This includes Cameroon, Chad, the Central African Republic, and Congo. Rep, Equatorial Guinea, and Gabon. The chart below provides an illustration of developments in the CFAF, which waxed and following the COVID-19 pandemic. …


Introduction.

The COVID-19 pandemic has exposed the vulnerabilities of the global trading systems that are increasingly intertwined, financially, and otherwise. While the human costs and pressure on health care systems leave little to desire, policymakers undertook a range of policy measures to limit the contagion from dismal health outcomes, social distancing, and border closures on the economy. Once again, monetary policy appears to be the only game in town, with the central bank cutting policy rates to new lows, with the ECB using other mechanisms given its policy rate is already in negative territory.

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Investment Executive.

It is now evident that policy rates will stay close to zero for the foreseeable future in advanced economies; this was already the case for the likes of Japan, Sweden, Switzerland, and Europe, where twin shocks from the 2008 financial crisis and tepid inflation growth have reduced the ability of the central bank to achieve its inflation target. Furthermore, currencies in advanced economies have been stable in the last decade, which has reduced the transmission to prices even as monetary policy has turned accommodative. Furthermore, inflation is equally subdued by competition and digitization that has caused a merger in global markets, where radical competition across borders has imposed a more gradual increase in the general price level. …


COVID-19 has accentuated the global inflation problem.

Introduction.

COVID- 19 has caused significant harm to both global health outcomes, with border closures and social distancing guidelines impeding economic activity across continents. As the virus has waxed and waned, with countries adapting at different rates, the economic dislocation caused by asynchronous contagion across sectors ranging from manufacturing, transport, health care, and education, tourism, and a range of services spanning farmers’ markets to restaurants and bars.

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Source: Business Today

Central banks have resorted to unprecedented measures, cutting policy rates to new lows across advanced economies in an attempt to attenuate the shock from the virus. Across North America, the Federal reserve cur policy rates to 0.25% and aggressively expanded its balance sheet, the Bank of England equally cut policy rates by 75 bps to 0.1%,. Meanwhile, the ECB with already negative policy rates at -0.50, opted to expand its asset purchase program. …


Introduction.

Can Africa live? This question is contingent on the ability of citizens and policymakers’ openness to technological advances as the anchor for future prosperity. Admittedly, COVID-19 has exposed the frailties of African economies and threatens to reverse development gains. The World Bank projects that the number of people living below the poverty line is projected to rise by up to 40%, with the majority living in Sub-Saharan Africa. This translates to higher rates of inequality, poor access to nutritious food, lower educational achievement, and higher gender disparities. …


Introduction.

Modern-day economics is besieged by a wave of anti-capitalist thought, but to overstate this will be ascribing to what Nigerian Author Ngozi Chimamanda calls the dangers of a single story. In modern times, capitalism has come to characterize inequality, deindustrialization, and globalization that has failed to deliver the benefits latent in market-based economic systems. A digital divide has emerged ever more strongly even as the precarity of jobs is endemic in most parts of the world. Meanwhile, weaker worker bargaining power has equally obliterated working conditions and inflation-adjusted increases in wages; As modern-day capitalism tickles ever further into everyday lives, the jobs, wages, and capital gains have accrued to fewer people. …


Global commodities are still reeling from the shock imposed by COVID-19 on global manufacturing, transport, and supply chains. The interruption of economic activity and the gradual relaxation of social distancing guidelines have done little to provide support to global economic activity. Acorifnt to the ILF, the global economy is set to contract by 6.1% in its most recent World Economic Outlook (IMF, 2020).

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Whilst central bankers have cut interest rates and supported additional public spending as well s the private sector via asset purchases, oil prices are unlikely to recover in the absence of a protracted spell of economic growth. On the one hand, the purchasing Managers’ Index (PMI) was encouraging in the month leading up to August, but economic activity appears to be recovering in a rather gradual manner. This bodes ill for oil prices that are facing significant headwinds from a situation of supply as well as government-imposed lockdowns and border closures that have adverse ripple effects across whole industries spanning, recreation, and tourism, manufacturing to the production of consumer and non-consumer goods. …


Brexit Returns with ever more uncertainty.

It would appear that things are getting back to normal, at least, as far as Brexit negotiations go. In June 2016, the United Kingdom voted to leave the European Union, blaming its membership in the union for a range of policy outcomes that caused unprecedented hardship, courtesy of austerity measures. Several years later, the U.K. officially notified the E.U. of its decision and its exit date has been postponed several times.

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A global pandemic and two prime ministers later, Brexit has returned to the global stage. This time around, diplomatic jibes about equivalence are little discussed, but rather the question of state-subsidies. When Britain decided to leave the EU, the latter was clear that fraying the union risks impacting trade and to quote Angela Merkel there can be no cherry-picking from the U.K. The integrity of the single market must be upheld, meaning that the free movement of goods, services, people and capital must be completely enforced rather in specific elements isolation. …


Introduction.

Following the economic dislocation posed by COVID-19 on economies across the world, I wrote extensively on the implications for monetary and macroprudential policy. This paper sought to identify the effects of the virus on domestic exchange rates, credit spreads, and macroeconomic outcomes. As expected, the rotation from emerging and developing asset markets into safe assets across the globe caused unprecedented harm to countries spanning South Africa, China to Cameroon. The financial and economic hardship caused by capital flow reversals and a sudden dollar appreciation was noticeable across all parts of the economies across developing and emerging market economies. During periods of macroeconomic volatility, government bonds in developing market economies see huge capital inflows as investors seek to cushion the shock of the event-driven uncertainty. …

About

Henri Kouam

I am an economist and contributor to Nkafu policy, a think tank. I cover global economic, fiscal and monetary policy with policy and asset price implications.

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