Headwinds And Tailwinds

Editor Andrea Fiano's monthly letter to you, the reader.

VOL. 35  NO. 2

Click Here To View Full Issue

What to do about the new coronavirus strains? Could hypercontagious variants of the virus derail the nascent global economic recovery?

The IMF recently revised its World Economic Outlook acknowledging all the risks (including the effects of lockdowns), and raised its forecast for worldwide growth this year to 5.5%, after a drop of 3.5% last year, with peaks at 11.5% in India and 8.1% in China, and 8% growth in global trade. The economic rebound, according to MUFG rates strategist John Herrmann, has strong tailwinds.

On the other hand, he notes, those new Covid strains are strong headwinds. And what about the vaccination rate—slow in most of Europe and North America, and even worse in many emerging economies?

“Much now depends on the outcome of this race between a mutating virus and vaccines to end the pandemic,” says Gita Gopinath, IMF chief economist, “and on the ability of policies to provide effective support until that happens. There remains tremendous uncertainty, and prospects vary greatly across countries.”

That’s a key concern. The headwinds and tailwinds aren’t blowing equally everywhere. Hence, the IMF now predicts the gap between advanced and emerging economies will widen, alongside rapid growth in poverty—90 million people more than last year. The agency expects some 150 countries to register lower per capita income than in 2019.

Our cover story this month explores how these various winds are impacting corporate finance. Corporate finance in 2021 will be characterized less by debt and equity issuance, and more on spending funds raised. After a record year as a result of very low interest rates, bond and equity issuances will probably slow down, while consolidation in different sectors will dominate the global scene. Strong companies with rich balance sheets will spur even greater M&A activity, but many companies have to digest high levels of indebtedness.

That will be easier to do in economies that recover more quickly. Yet the virus remains an unpredictable factor.

Andrea Fiano | Editor