Markets
Animation: Mapping the Recovery from the Global Recession of 2020
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Global Recession 2020: When Will the Economy Recover?
With 2020 nearly behind us, many are eagerly looking ahead to what 2021 will bring. COVID-19 vaccinations have begun, and hope is on the horizon for a stronger economy going forward.
The Organization for Economic Co-operation and Development (OECD) projects that after a 4.2% drop this year, the global economy will reach pre-pandemic levels in 2021. This animation, which uses data from the OECD, shows which countries will recover the fastest from the global recession in 2020.
Economic Forecast by Country
The projections assume that renewed virus outbreaks remain contained, and that a widely available vaccine near the end of 2021 helps to support confidence. Information used in the projections, such as monetary and fiscal policies, is as of November 27, 2020.
Here is how the economic forecasts break down for both OECD and non-OECD countries, sorted by projected real GDP growth in 2021:
Country | 2020P | 2021P | 2022P |
---|---|---|---|
🇨🇳 China | 1.78 | 8.04 | 4.95 |
🇮🇳 India | -9.86 | 7.90 | 4.83 |
🇫🇷 France | -9.11 | 6.03 | 3.27 |
🇪🇸 Spain | -11.63 | 5.00 | 3.99 |
🇧🇪 Belgium | -7.45 | 4.69 | 2.68 |
🇮🇹 Italy | -9.05 | 4.29 | 3.17 |
🇨🇱 Chile | -6.04 | 4.25 | 2.96 |
🇬🇧 United Kingdom | -11.25 | 4.20 | 4.10 |
🇮🇩 Indonesia | -2.43 | 3.96 | 5.05 |
🇦🇷 Argentina | -12.92 | 3.71 | 4.55 |
Mexico | -9.19 | 3.56 | 3.43 |
Canada | -5.39 | 3.47 | 2.01 |
Colombia | -8.32 | 3.47 | 3.73 |
Slovenia | -7.51 | 3.44 | 3.54 |
Estonia | -4.74 | 3.42 | 3.33 |
Bulgaria | -4.12 | 3.31 | 3.71 |
Sweden | -3.22 | 3.27 | 3.31 |
Australia | -3.83 | 3.24 | 3.06 |
Norway | -1.18 | 3.23 | 1.55 |
United States | -3.70 | 3.19 | 3.46 |
South Africa | -8.13 | 3.09 | 2.53 |
Iceland | -7.68 | 3.00 | 3.20 |
Poland | -3.51 | 2.92 | 3.82 |
Turkey | -1.30 | 2.92 | 3.20 |
Russia | -4.28 | 2.85 | 2.23 |
South Korea | -1.09 | 2.84 | 3.36 |
Germany | -5.53 | 2.80 | 3.31 |
New Zealand | -4.81 | 2.73 | 2.63 |
Slovakia | -6.29 | 2.68 | 4.34 |
Lithuania | -1.95 | 2.67 | 3.14 |
Brazil | -6.02 | 2.62 | 2.16 |
Hungary | -5.66 | 2.55 | 3.40 |
Latvia | -4.35 | 2.40 | 4.01 |
Japan | -5.29 | 2.32 | 1.49 |
Israel | -4.15 | 2.27 | 4.20 |
Switzerland | -4.69 | 2.16 | 3.38 |
Romania | -5.32 | 2.01 | 4.41 |
Costa Rica | -5.58 | 1.99 | 3.84 |
Denmark | -3.88 | 1.80 | 2.51 |
Portugal | -8.43 | 1.72 | 1.87 |
Finland | -3.97 | 1.54 | 1.83 |
Czech Republic | -6.79 | 1.50 | 3.27 |
Luxembourg | -4.45 | 1.47 | 3.76 |
Austria | -8.03 | 1.38 | 2.31 |
Greece | -10.1 | 0.90 | 6.58 |
Netherlands | -4.55 | 0.82 | 2.95 |
Ireland | -3.20 | 0.11 | 4.27 |
China started recovering earlier than most countries, and is projected to be the only country with positive GDP growth in 2020. Strong growth will continue in 2021, when China will account for over one-third of global economic growth.
Meanwhile, India experienced one of the world’s tightest lockdowns and will see a large GDP drop in 2020. The decline has exacerbated inequality, as school closures disrupt meal programmes and prompt dropouts by disadvantaged children. While the economy is forecast to grow from 2021-2022, it may take almost two years for GDP to fully recover.
Out of the countries measured in OECD’s forecast, Argentina will see the biggest GDP decline in 2021. Rising unemployment and inflationary pressures have contributed to the decline.
New Zealand’s GDP loss was similar to the OECD average, despite a larger drop in mobility, from the last quarter of 2019 to the second quarter of 2020. A recovery will partially depend on travel restrictions, as tourism accounted for 20% of the country’s total employment in 2019.
A Fragile Recovery
Considerable uncertainty about near-term GDP projections remain—$7 trillion of uncertainty, to be exact.
A downside scenario would be caused by delayed vaccinations or new outbreaks, and would lead to a $4 trillion GDP loss by 2022 compared to current projections. An upside scenario, spurred by fast vaccine rollout and boosted consumer and business confidence, could add $3 trillion to the global economy.
However, it is likely that the pandemic has caused permanent losses no matter the scenario.
As we wait for vaccines to be widely available, the OECD recommends that governments implement clear COVID-19 containment measures. While debt-to-GDP ratios have risen substantially due to stimulus packages, the organization also recommends that governments maintain strong fiscal support.
In particular, policies should be directed towards the most vulnerable, such as low-skilled workers, small businesses, and children. This may foster a more even recovery from the global recession of 2020.
Markets
Beyond Big Names: The Case for Small- and Mid-Cap Stocks
Small- and mid-cap stocks have historically outperformed large caps. What are the opportunities and risks to consider?
Beyond Big Names: The Case for Small- and Mid-Cap Stocks
Over the last 35 years, small- and mid-cap stocks have outperformed large caps, making them an attractive choice for investors.
According to data from Yahoo Finance, from February 1989 to February 2024, large-cap stocks returned +1,664% versus +2,062% for small caps and +3,176% for mid caps. Â
This graphic, sponsored by New York Life Investments, explores their return potential along with the risks to consider.
Higher Historical Returns
If you made a $100 investment in baskets of small-, mid-, and large-cap stocks in February 1989, what would each grouping be worth today?
Small Caps | Mid Caps | Large Caps | |
---|---|---|---|
Starting value (February 1989) | $100 | $100 | $100 |
Ending value (February 2024) | $2,162 | $3,276 | $1,764 |
Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Mid caps delivered the strongest performance since 1989, generating 86% more than large caps.
This superior historical track record is likely the result of the unique position mid-cap companies find themselves in. Mid-cap firms have generally successfully navigated early stage growth and are typically well-funded relative to small caps. And yet they are more dynamic and nimble than large-cap companies, allowing them to respond quicker to the market cycle.
Small caps also outperformed over this timeframe. They earned 23% more than large caps.Â
Higher Volatility
However, higher historical returns of small- and mid-cap stocks came with increased risk. They both endured greater volatility than large caps.Â
Small Caps | Mid Caps | Large Caps | |
---|---|---|---|
Total Volatility | 18.9% | 17.4% | 14.8% |
Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Small-cap companies are typically earlier in their life cycle and tend to have thinner financial cushions to withstand periods of loss relative to large caps. As a result, they are usually the most volatile group followed by mid caps. Large-cap companies, as more mature and established players, exhibit the most stability in their stock prices.
Investing in small caps and mid caps requires a higher risk tolerance to withstand their price swings. For investors with longer time horizons who are capable of enduring higher risk, current market pricing strengthens the case for stocks of smaller companies.
Attractive Valuations
Large-cap stocks have historically high valuations, with their forward price-to-earnings ratio (P/E ratio) trading above their 10-year average, according to analysis conducted by FactSet.
Conversely, the forward P/E ratios of small- and mid-cap stocks seem to be presenting a compelling entry point.Â
Small Caps/Large Caps | Mid Caps/Large Caps | |
---|---|---|
Relative Forward P/E Ratios | 0.71 | 0.75 |
Discount | 29% | 25% |
Source: Yardeni Research (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Looking at both groups’ relative forward P/E ratios (small-cap P/E ratio divided by large-cap P/E ratio, and mid-cap P/E ratio divided by large-cap P/E ratio), small and mid caps are trading at their steepest discounts versus large caps since the early 2000s.
Discovering Small- and Mid-Cap Stocks
Growth-oriented investors looking to add equity exposure could consider incorporating small and mid caps into their portfolios.
With superior historical returns and relatively attractive valuations, small- and mid-cap stocks present a compelling opportunity for investors capable of tolerating greater volatility.
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