Global Economics Intelligence executive summary, December 2020

A fast economic recovery, led by manufacturing and trade, is challenged by a resurgent pandemic; a Brexit deal is signed at the wire.

The world economy and the global COVID-19 pandemic seem to be following parallel paths of resurgence. The economic recovery has been remarkably rapid. To take one comparative measure, American industrial production has returned to within five points of precrisis highs in ten months, a mark not reached for five years during the financial crisis that began in 2007–08.

During that earlier crisis, furthermore, world trade recovered after two years; in the present crisis, trade recovery was reached in September, after only nine months. Since September, trade has further accelerated, led by exports from China. These grew by leaps and bounds over the past three months, with increases over 2019 levels of 9.9% in September, 11.4% in October, and 21.1% in November. The trade expansion has come so fast that for a time growth was delayed by a shortage of shipping containers in Chinese ports.

While in China COVID-19 has been contained since April, outside China, economic revival is shadowed by a resurging pandemic. Since early October, active cases globally have tripled and deaths have nearly doubled. In the United States, the country hit hardest by the virus, the case count has risen even more rapidly, and health systems are strained again. During the holiday season, many European countries reintroduced measures to control the accelerating spread. Hopes have turned to vaccines, which are now being administered to frontline heath workers and vulnerable populations. Healthcare leaders are warning that the next few months will be difficult and that affected populations should continue to wear masks and practice physical distancing.

The latest available economic data are consistent with the contours of a manufacturing- and trade-led recovery. Consumer sentiment has been slow to revive in most surveyed economies, further suppressed by new COVID-19 restrictions. Lately, however, retail sales have stirred. Year-on-year sales were strong globally in October and November. In China, where consumer confidence also strengthened, sales expanded in November by 5% over last year’s mark.

We have previously highlighted the extraordinary difficulties faced in 2020 by small and medium-size enterprises (and the people who work for them). Restaurants have had one of the harshest experiences, given the COVID-19 restrictions (Exhibit 1).

The restaurant business has been severely affected by COVID-19 restrictions, as indicated by the fallout in restaurant reservations.
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Meanwhile, the overall near-term outlook for manufacturing, as reflected in the global purchasing managers’ index (PMI), was broadly positive in December. Manufacturing PMIs in most individual surveyed economies continue to signal expansion (Exhibit 2).

Throughout Q4 2020, manufacturing in most surveyed economies was in expansion; in Russia, the sector lagged but improved in December.
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Consumer and producer prices remain deflationary in the eurozone, while in the United States, consumer-price inflation remains low. However, in some emerging economies, notably Brazil and India, inflationary pressures have mounted. In India, food-price inflation remains near 7%, a serious threat to economic recovery.

With steadily returning demand, energy and industrial-commodity prices are rising. Oil prices slowly climbed in December, passing $50 per barrel (Brent); OPEC and Russia have agreed to increase production modestly in 2021. Coal prices surged as a result of high demand from Asia and supply constraints. Industrial metals prices are also rising on higher demand, led by copper.

Stock indexes boomed in November, and the momentum mostly carried over into December. Investor confidence strengthened after the US presidential election and the advent of vaccines. The US dollar continues to depreciate against major currencies; the Brazilian real gained value in December but remains very weak. Volatility indexes have decreased.

Government-bond yields have been low and stable through the pandemic; Italy’s yields have been on a downward trajectory, as vaccine news and relative political stability strengthened investor confidence.

In the United States, political uncertainty eased after Joe Biden and Kamala Harris were formally certified by the Electoral College as victors of the US presidential election. A second stimulus package was passed, with one-time direct payments to households and augmented unemployment benefits. New claims for these benefits have remained elevated in the United States (more than 700,000 weekly) throughout the final quarter of 2020.

What certainty the year 2020 gaveth, however, it also tooketh away—down to the last minute and into 2021. In advance of the December 31 expiration date for rules governing trade between Britain and the European Union, trucks massed for days at Calais and Dover on either side of the Channel. At the wire, a Brexit deal was concluded, allowing for tariff- and quota-free trade in goods and avoiding a hard border within Ireland.

UK–EU trade was formidable in 2019, totaling ₤667 billion (€739 billion). Some safety and customs checks will resume, however, and business organizations face new layers of red tape and potential trade disruptions. The deal did not include financial services, and questions about market access remain unanswered. An agreement on regulatory cooperation will be worked out in the coming months. The difficult concept of the “level playing field” was addressed in principle. Accordingly, perceived disproportionate advantages granted to home industries by one side (lower regulatory barriers, higher subsidies, and the like) are subject to proportionate retaliatory action by the other, to be adjudicated by an independent panel. Further talks will have to address the many issues left unresolved or partially resolved, in such areas as residency, travel, professional qualifications, data flows, energy, and agriculture and fisheries.


McKinsey’s Global Economics Intelligence (GEI) provides macroeconomic data and analysis of the world economy. Each full monthly release includes an executive summary on global critical trends and risks, as well as focused insights on the latest national and regional developments. Download the full report for December 2020 here. Detailed visualized data for the global economy, with focused reports on selected individual economies, are also provided as PDF downloads on McKinsey.com. The reports are available free to email subscribers and through the McKinsey Insights app. To add a name to our subscriber list, click here. GEI is a joint project of McKinsey’s Strategy & Corporate Finance Practice and the McKinsey Global Institute.

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