Our main hope for 2021 is that the coronavirus pandemic can be put behind us: vaccines now appear to offer a realistic prospect of this. But the debate about the policy response to the coronavirus pandemic, and its social and economic implications, is likely to continue for some years.
Great crises historically have usually taken a long time to be fully understood: academic economists are still arguing about the handling and implications of the Great Depression, nine decades later. However, as we go into 2021, we cannot wait for a full analysis. Instead, we need an initial framework to start considering what the aftermath of the coronavirus will mean for the economic, social and investment outlook.
To do this, we have structured this outlook to give four different perspectives on what the crisis has meant. We look at this issue from the perspective of individuals, businesses, the political economy and the global world order.
The political, economic and investment impacts of the pandemic seem rather different when seen from each of these four perspectives. One immediate concern is not just to identify these impacts but also evaluate their degree of reversibility in 2021. (To what extent, for example, will professional and clerical workers go back to offices?)
But, while the short-term outlook for recovery is important, we also need to see the pandemic and its implications over a longer time horizon. As well as creating new problems, the pandemic has also accelerated or exacerbated many pre-existing economic and investment trends. And, running through all these trends, four “Ds” (4Ds) are often to the fore: divergence of income, wealth and economic progression within and between economies; digitalisation and its impact on how individuals, businesses and governments operate; demographics as long-term pre-existing shifts in population distributions change political and economic priorities; and, finally, debt – both public (as government fiscal deficits balloon) and private.
We need to see the pandemic and its implications over a longer time horizon. Four "Ds" – divergence, digitalisation, demographics and debt – will be issues of continuing importance.
Christian Nolting, Global Chief Investment Officer, Deutsche Bank International Private Bank
Looking at coronavirus in the long-term context has two broad implications for investment.
1. If you see this not just as a short-term recovery issue, but also as a response to structural changes around economic and investment relationships – the “tectonic plates” on our cover – an investment response needs to be not just tactical, but also strategic. We believe that the best way forward is through a strategic asset allocation (SAA) process that can both understand the changing relationships between asset classes and mitigate the uncertainty around their future development.
2. Both within an SAA, and also in satellite investments to existing portfolios, we think it makes sense to invest in key themes that will play an increasing role in long-term global development. As we explain, we have been developing key themes since 2017 and now have ten, which sit within a triangle bounded by technology, demographics and sustaining the world we live in (TEDS for short). For reasons we discuss, sustainability – often in the form of ESG investment – is likely to be even more important in years to come. This year we deepen our sustainability view by launching a new key theme on the blue economy. Other key themes of particular relevance for 2021 could include cyber security, 5G, healthcare, millennials and resource stewardship.
Our full CIO Insights report “Annual Outlook 2021: Tectonic shifts" includes our new macroeconomic and financial market forecasts for 2021. Please refer to the Important Notes at the end of the report for disclosures and risk warnings.
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Our daily lives: no return to the status quo ante
The pandemic has changed our daily lives in many ways. We have a greater awareness of the role of the state in our lives – for example through healthcare and economic support. The implications of social and economic inequality have been brought into sharper focus. Debates will continue on both our social and physical infrastructure – in short, how we live.
Business reinvention: expect more change
A process of business (and economic) reinvention is necessary to recover from the pandemic. But is greater state involvement and support a help or a hindrance to this process? Growing momentum behind ESG (environmental, social and governance) issues will also guide reinvention, with technology playing an even more central role.
The political economy – seeing in 4D
Governments must address multiple issues posed by the 4Ds of divergence, digitalisation, demographics and debt. With fiscal and monetary policy remaining under extreme pressure in 2021 and beyond, the search for new approaches will continue. Governments, populations and markets all need politically-acceptable solutions.
More about Impact #3
The new world order: winners and laggards
Coronavirus has accelerated some pre-existing long-term trends – notably the ascent of Asia. Meanwhile, developed economies may diverge as they deal with diverging structural concerns. A new world order will involve regionalisation challenging multilateralism and the reinvention of currencies – in terms of both function and drivers.
Key investment themes: diving deeper on ESG
Economic and social “tectonic shifts” from the pandemic demand a strategic as well as tactical investment response. Our ten key investment themes are defined by the TEDS triangle - technology, demographics and sustaining the world we live in. Cyber security, 5G, healthcare, millennials, resource stewardship and the blue economy will be in particular focus in 2021.
