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LONDON – Deutsche Bank has improved its global growth prospects for 2021, but warned that two main risks could still affect the economic recovery from the coronavirus crisis.
In the bank's latest report on Wednesday, "Hope on the Horizon," Deutsche Bank researchers updated their appeals based on the so-called "incredibly positive" news about coronavirus vaccines in recent weeks. Pharmaceutical giants Pfizer, Moderna and AstraZeneca said that all vaccine candidates were highly effective in preventing Covid-19.
"With effectiveness rates at the upper end of expectations, there is the possibility of a much faster normalization than expected a month ago," said David Folkerts-Landau, chief economist at Deutsche Bank. "It may not have much of an impact on daily life by the end of 2021," he added in the report.
With a vaccine on the horizon, Deutsche Bank said, "It is likely that global GDP (gross domestic product) will return to pre-virus levels in the second quarter of next year."
According to the House, global GDP will shrink 3.7% in 2020, with the US economy shrinking 3.6%, the euro zone shrinking 7.4% and China growing 2.2%.
Deutsche Bank predicts that the US economy will grow by 4% in 2021, the economy in the euro zone will recover by 5.6% and the Chinese economy will grow by 9.5%.
Two main risks
However, the German lender warned of two main risks that could mask this scenario.
The first risk is the challenges arising from the flattening of the virus curve in winter and possible delays in the manufacture, distribution and acceptance of vaccines by the public – given the increased anti-vaccination movements and misinformation in recent years.
Deutsche Bank expects widespread vaccination in advanced economies to begin in the first quarter of 2021 and resume on a larger scale in the second quarter. However, it said: "The big unknown is whether the population will accept vaccination and whether the vaccine can be compulsory."
The World Health Organization warned in 2019 that vaccine reluctance was one of the top ten threats to global health.
The second major risk arises from potential financial disruption as "central banks and financial authorities have taken aggressive action, particularly in the US and Europe" to counter the economic crisis caused by the pandemic.
"We see an increasing risk of financial disruption in the future due to the increasing overvaluation of assets and increasing debt driven by the necessary extremes to which monetary and fiscal stimulus has moved," the said Researcher.
"Financial crises in the past in such conditions have often been sparked by the inevitable shift from political ease to political tightening, which is likely a few years away but could surprise sooner," they added.
Deutsche Bank said their market views had not changed from their previous report: "We are sticking to our view that the S&P 500 is fully valued and that the rotation in cyclicals from the heavy mega-caps to stay Home trading can mean a rare time when European stocks outperform. "
Meanwhile, US election results, with a divided government (with Republicans likely to retain a majority in the Senate and Democrats likely to retain a majority in the House of Representatives), appear to be the most likely outcome "also to curb the new administration's political ambitions". it said.
Folkerts-Landau noted, however, that if the Democrats won the runoff elections in Georgia and took control of the Senate, a significantly larger fiscal stimulus could result. "So this will be a big focus in January," he added.