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Light on the Horizon: 2021 Macroeconomic Outlook


Next year should see the global economy led by China and a moderate recovery in Europe and the United States in an environment supportive of risk, though already with some pockets of very tight pricing in investment grade. We are focused on 1) A China-led rebound 2) ESG solutions supported by policies in Europe and the United States 3) New technologies 4) Infrastructure, and 5) Flexible solutions that can quickly adapt the geometry of a portfolio.

A China centric rebound

China is the bright spot as the economy steadily rebounds and continues at a very decent clip. Consumption should also steadily improve as the job market tightens. China’s demand is already supporting production in Germany and this should help the rest of Asia Pacific. Note though that China is on a course for some import substitution in critical industries at a time when regional frictions are increasing. While this is an important development over a five year horizon, we remain focused on the economic rebound.

USA – W shaped recovery

Faced with a possibly W-shaped recovery, the Democrats may have to wait for the January 20th Presidential inauguration to pass a substantial fiscal package, and this with difficulty if the Republicans hold the Senate. Beyond this and partially to finance it, taxes are likely to rise somewhat for those earning two hundred thousand and above, while capital gains could increase somewhat to be a tad more in line with personal income so as not to discourage labor. This should help finance a broader health insurance, infrastructure, student loan forgiveness and a USD 1.7 trillion plan, in theory, to reach zero net gas emissions by 2050.

Europe – dispersion in growth

Growth in Europe is decelerating with lockdowns in several country and should start to rebound in January. Consensus expects economies to broadly recover together, but the odds are there will be some dispersion with the North outperforming. For example, Nordic economies are expected to grow at 3.5%. Nonetheless, Europe is likely to grow at a decent pace as its economies are far below potential.

Product implications

There are a series of product implications: 1) A China rebound can be expressed through EM exposures or specific China ones. 2) The ESG is a secular trend that is rapidly spreading. 3) New technologies such as Alibaba or Ant disrupt fundamentally established companies.  4) Infrastructure is likely to benefit from government spending in Europe and the United States. This is a defensive asset class, trading at historical discounts with high exposure to secular trends like ageing assets, de-carbonization and data growth, which will further drive growth potential of this asset class.


The environment next year should be broadly supportive for risk, yet there are already signs of excessively tight pricing in investment grade. We expect to see bouts of volatility from this, as well as periods of lower growth expectations. This continues to suggest holding flexible solutions that can quickly adapt to new circumstances.

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