Global
In 2020, we saw the world become more distanced, domestically focused and digital. In 2021, we expect to see the unlocking of some pent-up demand as socializing becomes possible and businesses realize some of the gains from investing in a more digital platform. The recovery is likely to be uneven with more calculated risk-taking from businesses and individuals and more targeted government policies.
We have seen a rapid acceleration in many pre-Covid-19 trends that are expected to be long-lasting: the shift to e-commerce, automation, contactless interaction, local delivery services and ‘tele-everything.’ Other pre-Covid trends, such as growth in the ‘experience economy,’ have been interrupted by the pandemic, but do not look to be a hard shift in consumer preferences. We estimate that about 20 to 30 percent of the peak in the Covid-related shift to e-commerce will stick.
The pandemic has created a multi-speed global recovery that favors low-touch over high-touch activity, high-income consumers over low, and has created a significant job divide for minorities, women and younger workers. Government and central bank stimulus policies that supported incomes and financial stability (and steered economies away from worst-case scenarios) are coming to an end and highlight the risk of greater economic scarring.
The deployment of vaccines and therapeutics are expected to keep the global economy on a gradual recovery path. As Main Street and shopping malls have seen many shops, bars and restaurants close, we expect to see an emerging demand for health products and services, personalized experiences, and products that offer more uniqueness.
With a heavy focus on the home, consumer spending on retail and services recovered quickly after significant global government stimulus in 2020. As travel spending was reallocated, home improvement and furniture and furnishings spending were among the strongest components of retail spending in the last year. Consumer spending growth in 2021 is expected to rely on the easing of mobility restrictions, digital innovation and additional government stimulus programs.
Shopping for the home and shopping local are trends expected to remain relatively sticky as consumers have shifted living and working away from central business districts in many Western countries. Notably, consumers in Western countries have invested heavily in durable assets – particularly homes and cars – in more suburban areas.
Mobility restrictions had a larger impact on higher-income individuals as their spending on travel, eating and shopping was impacted more significantly. Lower-income individuals continued to spend on essentials, such as rent and groceries and pulled back their spending by less. These trends tell us where we could see some unlocking of pent-up demand in 2021. Notably, elevated unemployment rates will provide a speed-limit effect to the recovery in consumer spending.
SpendingPulse™ 3m y/y growth rate (Aug 2020 - Oct 2020)
Source: SpendingPulse™, Mastercard Economics Institute
SpendingPulse™ reports and content, including estimated forecasts of spending trends do not in any way contain, reflect or relate to actual Mastercard operational or financial performance, or specific payment-card-issuer data.
We estimate that about 20-30 percent of the global peak in the Covid-related shift to e-commerce will be a permanent bump in the e-commerce share of overall retail spending. In the US, this implies a two-year acceleration in the ongoing shift to e-commerce from brick-and-mortar stores.
As e-commerce rapidly became a way to pandemic-proof a business, investment in digital was significant in 2020. Adoption by older generations and added convenience and lower costs for consumers will likely keep digital demand sticky in 2021. The accelerated shift to digital has played out in increasing use of automation, broader sets of industries working from home and more touchless experiences.
Going digital can enable financial inclusion, improve tax revenues and improve business productivity. However, going digital can also come at the cost of low-skilled employment, which accelerates the demand for lifelong learning and workforce re-training. Online and anytime shopping ultimately smooth out the day and time when consumers make purchases, with fewer peak periods and fewer high-touch jobs.
As travel disruptions persist, we highlight the net tourism deficit vs. surplus countries around the world. Places where more tourism dollars go out rather than in during normal times (i.e., those who run a deficit) — such as China, the UK and Singapore (shown in the chart) —could benefit from these would-be-travelers forced to stay within their borders, keeping their holidays and spending domestic. International travel, especially long haul, will be in a multi-year recovery, held back by bottlenecks on the supply side. These challenges include reduced aircraft availability due to age, maintenance bottlenecks for parked inventory, repair and parts replacement logistics and supplies, and availability of flight deck crews due to re-certification and minimum flight requirements.
Road trips and the ability to control the environment while limiting interaction is likely to continue in 2021. However, there is significant pent-up demand from accumulated credits and miles that are likely to result in a flurry of rebooking flights as mobility restrictions are lifted.
The health pass, which travelers can provide to show proof of vaccination or a negative recent Covid test, will likely be in focus. It complements the emergence of trusted travel bubbles.
Source: World Bank, Mastercard Economics Institute
On top of the significant impacts to bars and restaurants, businesses in sectors or locations that rely on a consistent flow of commuters and tourists have been badly hit. As a likely trend to what we see globally, 74 percent of the new retail businesses registered since April 2020 were non-store retailers (i.e., online).
New business creation is expected to be driven by micro-businesses emerging online, existing businesses establishing a separate online presence, and the ‘formalizing’ of businesses by officially registering to take advantage of government programs. Meanwhile, uncertain demand, tighter lending conditions and travel and entertainment challenges will impair new brick-and mortar-business creation around the world in 2021. We see most new business openings in 2021 opting for virtual storefronts to reach more customers while minimizing costs.
After years of trade wars and the exposure of the vulnerability of supply chains around the world, we have seen greater emphasis on local production with more control, such as manufacturing and tech sovereignty. Supply chains face pressure to shift from ‘just in time’ to ‘just in case’ inventory management. In 2021, watch for companies shifting production and supply chains to adding alternative sources for a more limited product line and focusing on more localized production.
An economy’s ability to continue to recover in 2021 will rely heavily on the extent to which governments can provide timely and targeted fiscal stimulus, service their debt and meet prior obligations (including the payments to public pensions). While fiscal stimulus programs dwarfed those from the Global Financial Crisis, the 2020 stimulus plans were not as large as headlines suggested once you adjust for timing and money spent versus guarantee or deferral programs. Expiring stimulus is a looming risk for 2021 and beyond but is more likely to be more of a ‘slope’ than an actual ‘cliff’ effect.
Restrictions in mobility have impacted migration trends and may widen skills gaps in the labor force. This means labor-providing countries such as India, the Philippines and Nigeria end up with higher local unemployment and lower remittance income. Labor-receiving countries, such as the United States and the United Kingdom, end up with a labor shortage.
Major central bank balance sheets saw unprecedented expansions in 2020, which, along with ultra-low interest rates, has helped boost asset price inflation – particularly equity and home prices – and corporate debt issuance. Balance sheet expansion by the US Federal Reserve in 6 months was as big as that seen over the prior 12 years. Even emerging markets have jumped on board the quantitative easing bandwagon, which could bring a broader discussion of central bank independence back into question in 2021.
Source: World Bank, Mastercard Economics Institute
As we consider a full range of risks (outlined in the heatmap below where red implies greater risk), the question of debt sustainability will likely be a key focus in 2021. Countries are looking to service their larger debt burdens in the face of slower growth rates and elevated unemployment. The risk of higher consumer delinquencies and defaults is significant in the face of elevated unemployment rates, expiring government stimulus programs and potential delays in the deployment of vaccines and therapeutics.
There is a growing focus for governments on the potential fallout from climate change. Climate change carries both short- and long-term risks that are not fully appreciated, including existential risks for many small coastal and inland nations.
Stressed economies have led to stressed politics and unrest around the world, which deserve close attention. The link between high unemployment and social unrest is likely to remain an issue in 2021.
Source: Oxford Economics, Oxford University, Johns Hopkins CSSE, Bloomberg, IMF, Mastercard Economics Institute
data updated as of November 30, 2020
US & Canada
E-commerce adoption soared following measures to control the virus. Still, the upward trajectory may hit some bumps as consumers wait for additional government support and the lifting of mobility restrictions as vaccines are deployed. Meanwhile, consumers are now shopping anytime and closer to home with fewer peak shopping periods throughout the day and week. The e-commerce shifts are great for digital evolution and productivity but will be challenging for the labor market recovery.
This recession has impacted minority-owned enterprises to a greater degree while we have seen increased income inequality with larger job losses for the young. We should expect a new wave of bankruptcies, particularly for small businesses in the US, as businesses face a slow recovery and the hard choice of taking on more debt or closing shop.
The timing and size of the next round of US fiscal stimulus will set the tone for the recovery. Meanwhile, after years of budget surpluses, Canada has opted for an aggressive fiscal stimulus that boosted consumer confidence and spending. In both economies, retail spending has gone back to the trend growth seen before the shock, while spending on travel & entertainment lags.
The suburban shift has driven residential property prices higher in non-urban centers in both economies. In Canada, house prices are rising after stagnating in 2018 and 2019 but have re-sparked concerns of elevated household debt and debt sustainability. Spending in and around the home has been the main focus for mobility-restricted consumers who have also redirected spending to other hard assets like autos. These themes, along with a focus on health and well-being, are expected to dominate in 2021.
The high earners reduced their spending sharply as they typically spend on travel, dine-in restaurants and boutique shops – all sectors impacted by restrictions. Looking ahead, high-income earners have shown signs of pent-up demand for things like leisure travel, while housing and stock market strength can amplify spending growth.
Low-income individuals cut back less on spending, aided by government stimulus and because the categories where they spend the most were less restricted, such as groceries, take-out restaurants and housing. Notably, low-income workers were hit hardest by layoffs, and as fiscal stimulus support fades, we can expect spending to follow suit. Offsetting this trend will be the reopening/rehiring effect. Fiscal stimulus will play an important role in the speed of the recovery, while successfully deploying an effective vaccine is critical to boosting consumer sentiment.
Working from home meant more consumer spending occurred closer to home in non-business districts. A large portion of this shift in the location and time of spending is likely to stick more permanently post-Covid as work-from-home setups become permanent and place consumers further from non-business districts. For 2021, this means spending will be more spread throughout the time of day and week, with less clustering in peak hours.
SpendingPulse™ 3m y/y growth rate (Aug-Oct)
Source: SpendingPulse™, Mastercard Economics Institute
SpendingPulse™ reports and content, including estimated forecasts of spending trends do not in any way contain, reflect or relate to actual Mastercard operational or financial performance, or specific payment-card-issuer data.
Throughout the crisis, e-commerce spending nearly doubled from its pre-crisis levels, with the share of online spending surging from about 11 percent to 22 percent at its peak. As e-commerce rapidly became a way to pandemic-proof a business, the adoption by older generations was robust. With consumers also enjoying added convenience and lower costs, we expect the shift to e-commerce to be sticky. We estimate about 20-30 percent of the Covid-related surge in e-commerce will be a permanent bump in the share of overall retail spending, which equates to about a two-year leap in the trend shift to e-commerce.
All told, we saw the 3-month year-over-year growth rate in retail e-commerce increase by nearly 59 percent in October in the US and Canada. Online and anytime shopping impacts the day and time when consumers make purchases, with fewer peak periods and fewer high-touch jobs.
The accelerated shift to digital has played out in increased automation, broader sets of industries working from home and more touchless experiences. Going digital improves business productivity at the cost of employment, which has accelerated demand for lifelong learning and workforce re-training. With increasing returns to scale in a digital world, small firms potentially lose out, while tech platforms and services that help narrow that gap can thrive. The jobs outsourcing economy may benefit from the shift to remote work and investment in technologies that enable it.
Lockdowns and cross-border travel restrictions provided a new boost to American road trips, including purchases of big trucks. This means more domestic tourism in less crowded locations that may be more ‘off the beaten track.’ Road trips and the ability to control the environment while limiting interaction is likely to continue in 2021 as mobility restrictions are only gradually eased. Vacation homes are in high demand and, combined with the trends above, push out the spending radius further away from urban city centers.
There is significant pent-up demand from accumulated credits and miles that are likely to result in a flurry of rebooking flights as mobility restrictions are lifted. Leisure travel could benefit most from this, while business travel may be slower to recover as it requires more barriers to navigate.
The health pass, which travelers can provide to show proof of vaccination or a recent negative Covid test, will likely get more attention. It complements the emergence of trusted travel bubbles.
Source: World Bank, Mastercard Economics Institute
74 percent of new businesses created in the US since the onset of the pandemic have been non-store retailers – reflecting mobility restrictions, limited access to credit, innovation and perhaps a move to ‘officially register’ and take advantage of government programs. Meanwhile, uncertain demand, tighter lending conditions and travel and entertainment challenges will impair new brick-and mortar-business creation around the world in 2021.
Coming on the heels of the US-China trade war, the supply chain disruptions have highlighted the upside to supplying and producing locally. A Biden White House will likely focus on combating climate change and working more constructively with China on trade. Businesses have also shifted to a ‘just in time’ from a ‘just in case’ approach to inventory management to limit the risk of an inventory surplus. In 2021, watch for companies shifting production and supply chains to adding alternative sources for a more limited product line and focusing on more localized production.
Corporate debt issuance has taken advantage of low-interest rates. Notably, US corporate debt had already surpassed household debt in 2019, while Canada’s corporate debt to GDP ratio is among the world’s highest, behind only China and France in the G20. Interest coverage ratios have shrunk, and corporations have used this cost reduction to offset some of the demand shifts on the back of the pandemic. Smaller firms lacking access to public debt markets have been supported by government measures to encourage lending, such as loan guarantees, which are coming to an end and highlight a significant risk for these players.
The robustness of US economic growth in 2021 will rely heavily on the amount of implemented government stimulus. While American and Canadian fiscal stimulus programs dwarfed those from the Global Financial Crisis, the 2020 stimulus plans were not as large as headlines suggested once adjusted for timing and money spent versus guarantee or deferral programs (see chart). Expiring stimulus is a looming risk for 2021 and beyond but is more likely to be more of a ‘slope’ than an actual ‘cliff’ effect.
The balance sheet expansion by the US Federal Reserve in the six months following the crisis was as significant as the accumulated increase over the prior 12 years. Ultra-low policy rates are likely to stay for years to come, helping to keep funding costs low for the economy as it transitions to a post-Covid world.
Beyond how to cope with deploying vaccines while respecting state or provincial rights, mobility restrictions have impacted migration trends and may widen skills gaps in the labor force. This means labor-receiving countries such as the US and Canada could see a labor shortage, impacting both low- and high-skilled labor in the two countries.
Source: IMF, Mastercard Economics Institute
Business closures will be a significant challenge for state and local tax revenues. The US and Canada have already faced record budget gaps at the local level, with unique funding challenges for densely populated areas like New York City. Cities will have to plug budget holes by raising taxes and cutting spending (i.e., laying off public sector workers). Both efforts will drag on growth but are significantly better than the alternative – default – which would require a larger and immediate spending adjustment.
Elevated unemployment rates and the disproportionate effects on low-income workers will exacerbate income disparity as a result of the pandemic. Moreover, asset price inflation of residential real estate and equities rather than consumer price inflation is a lasting side effect of the policy stimulus. This risks further wealth inequality. The question of debt sustainability will likely be a focus in 2021 as the risk of higher consumer delinquencies and defaults are significant.
Stressed economies have led to stressed politics and unrest worldwide, including the US, which deserve close attention. The link between high unemployment and social unrest is likely to remain an issue in 2021.
Source: Oxford Economics, Oxford University, Johns Hopkins CSSE, Bloomberg, IMF, Mastercard Economics Institute
data updated as of November 30, 2020
Latin America & Caribbean
A double hit of a slowdown in international tourism and a drop in remittance flows will be detrimental to growth, especially for many of the region’s small, externally-positioned economies.
Beyond different Covid approaches, fiscal approaches vary widely in the region, as seen in Brazil and Mexico. For Brazil, which opted for an aggressive support program, larger in scale than some advanced economies, the challenge is when the support ends. The massive ‘coronavoucher’ subsidy program more than offset lost income for many recipients. For Mexico, the challenge is how quickly the economy can bounce back from the economic scarring caused by such a deep downturn.
Lack of room for government stimulus across the region will make the task of jumpstarting economies much more difficult and may undermine political stability and potential long-term growth. Reforms that could boost growth in the longer term may be difficult in 2021 in a more fractured political environment.
Mobility restrictions have impacted migration trends and may widen skills gaps in the labor force. This means labor-providing countries such as Mexico, Colombia, Ecuador and Peru end up with higher local unemployment and lower remittance income.
Mobility restrictions had a larger impact on things like travel, eating and shopping, where higher-income individuals spend than essentials such as rent and groceries where lower-income individuals spend. We expect these trends to reverse as mobility restrictions are gradually lifted.
After a large fiscal package pulled many Brazilians out of poverty and stimulated consumer spending, the question has turned to the expiration of the ‘coronavoucher’ and the broader sustainability of government handouts. Beyond the surge in supermarket spending, Brazilian consumers focused their spending on furniture and electronics stores and furniture and furnishings stores after focusing on building materials early in the crisis. The North has been the regional outperformer and highlights the move away from more urban centers.
Consumer confidence remains soft as uncertainty about the virus and the economy is high. We expect growth to be driven by fiscal stimulus and the outbreak’s evolution, including vaccine deployment. Inflation in the region has remained contained, but there are pockets of risk, particularly in Brazil, as higher inflation remains a risk for consumption in 2021.
SpendingPulse™ 3m y/y growth rate (Aug 2020 - Oct 2020)
Source: SpendingPulse™, Mastercard Economics Institute
SpendingPulse™ reports and content, including estimated forecasts of spending trends do not in any way contain, reflect or relate to actual Mastercard operational or financial performance, or specific payment-card-issuer data.
During the crisis, e-commerce spending jumped significantly from its pre-crisis levels, from about 10 percent to 16 percent at its peak. While e-commerce adoption in Latin America and the Caribbean is low compared to other regions, we expect about 20-30 percent of the Covid-related surge in e-commerce will be a permanent bump in its share of overall retail spending. Notably, the adoption of financial services delivered via online channels and other digital services are growing in popularity among the lower-income demographic, which is likely to persist well into 2021.
More international e-commerce giants are trying to penetrate the South American market, so the competition will likely spur growth. This expansion, along with sticky e-commerce demand, could result in growth for commercial warehouse leasing and jobs based on the growing need for storage and delivery services.
As another sign of digital innovation in the region, watch for the rollout of central bank digital currencies in Latin America in 2021 and beyond.
As the world re-routes international tourists to more local destinations, Mexico, Peru, Ecuador, Central America and the Caribbean are heavily exposed to the drop in international tourism as they have historically run the largest tourism surpluses in the region (see chart). Carnival 2021 celebrations will look very different than previous years as both international and domestic tourists adhere to mobility restrictions.
The double-hit for the region will come from the impact of slower international travel and a decline in remittances from workers and families abroad, which amounted to 1.5 percent to 3 percent of total GDP in Peru, Colombia, Ecuador and Mexico. In the Caribbean, the impact is in the double-digits.
Eco-tourism is taking off in Medellin, Colombia, and could be a competitive advantage as tourists shift their travel preferences from densely populated cities to getaway destinations.
Source: World Bank, Mastercard Economics Institute
If the US trend for new business creation is any indication of trends in Latin America and the Caribbean, we can expect business creation to be limited to those looking to ‘formalize’ and participate in government programs, as well as selling goods online. Uncertain demand, currency moves, tighter lending conditions and travel and entertainment challenges will impair new brick-and mortar-business creation in 2021. In the meantime, online business creation continues to gain steam, and other businesses ‘formalize’ by officially registering to take advantage of government programs.
Like the rest of the world, bars and restaurants have been the most impacted, while other businesses in sectors or locations that rely on a consistent flow of commuters and tourists have been badly hit.
Large oil exporters, including Mexico, Brazil and Colombia, may benefit from the ongoing recovery in oil prices. However, the incoming Biden administration is at odds with Mexico President Andrés Manuel López Obrador regarding climate policy, which places additional challenges on Mexico’s national oil company, Pemex, to stay profitable and its cement producer, Cemex, to return to profitability. Meanwhile, higher metals (industrial and precious) and soybean prices, due to demand from China, is good news for exporters such as Brazil, Chile and Peru.
An economy’s ability to continue to recover in 2021 will rely heavily on whether governments can provide fiscal stimulus while staying on track to service their debt over the long term. Expiring stimulus, especially in Brazil, is a looming risk for 2021.
Countries with large fiscal savings, such as Chile and Peru, have sizeable sovereign wealth funds to support the economy. This leaves them better positioned than those without, such as Mexico and Brazil. Mexican fiscal conservativism contrasts with Brazil’s fiscal spending spree. It’s not clear who has the ‘right’ approach as both are ending up with fiscal challenges.
Aggressive monetary policy stimulus has mostly been needed given limited fiscal policy room. Some central banks have even adopted quantitative easing policies, with balance sheet expansions seen in Chile and Colombia. This may bring a broader discussion of central bank independence back into question in 2021.
Source: IMF, Mastercard Economics Institute
Mexico, Chile and Peru entered the Covid crisis in already weak economic positions, with growth weaker than the three years running up to the end of 2019. Across the region, banks’ non-performing loans and credit card insolvency could intensify in the first half of 2021 as loan deferral programs expire along with the impact of shutdowns in the event of a second Covid wave. Stressed economies risk leading to stressed politics and a return of unrest in many economies. The link between high unemployment and social unrest is likely to remain an issue in 2021.
Mexico stands out for being relatively more exposed to global trade than other major economies in the region. External trade to GDP was on a rising trend before the crisis. This is good news in upswings, but a vulnerability in a soft global demand environment.
Debt sustainability will be a challenge as funding conditions may stay strained. Countries are looking to service their larger debt burdens in the face of slower growth rates and elevated unemployment. Meanwhile, the risk of higher consumer delinquencies and defaults is significant in the face of elevated unemployment rates, expiring government stimulus programs and potential delays in the deployment of vaccines and therapeutics.
Source: Oxford Economics, Oxford University, Johns Hopkins CSSE, Bloomberg, IMF, Mastercard Economics Institute
data updated as of November 30, 2020
Europe
The UK economy has been one of the hardest hit by Covid, while the waves of new cases later in the year put the entire region on its back foot. Wounds left from the pandemic will likely restrict the appetite for both consumer spending and business investment in 2021.
The stop-start nature of Europe’s recovery is likely to be a dominant issue through the first half of 2021, at least. Ground travel became the dominant mode of transport through the pandemic, leading to a similar pattern of ‘out of the way’ spending seen throughout the world.
The pandemic has created a multi-speed recovery that favors low-touch over high-touch activity, high-income consumers over low, and has created a significant job divide for minorities, women and younger workers. Government and central bank stimulus policies that supported incomes and financial stability and steered economies away from worst-case scenarios are coming to an end and highlight the risk of greater economic scarring.
The deployment of vaccines and therapeutics are expected to keep the economy on a gradual recovery path. As Main Street and shopping malls have seen many shops, bars and restaurants close, we expect to see an emerging demand for health products and services, personalized experiences and products that offer more uniqueness.
Consumer spending was lifted significantly by job support programs and other guarantee and deferral programs. Social distancing requirements impacted leisure travel and entertainment and redirected much of this spending to the home. Consumer spending in 2021 is expected to rely on the easing of mobility restrictions, digital innovation and additional government stimulus programs re-gaining steam. The shift in spending habits, away from central office areas and towards more residential areas, is expected to drive the consumer spending radius closer to the home and online.
Mobility restrictions had a larger impact on things like travel, eating and shopping, where higher-income individuals spend than essentials such as rent and groceries where lower-income individuals spend. We expect these trends to reverse as mobility restrictions are gradually lifted. Along with the duration of the pandemic, higher asset prices will exacerbate income differences.
Shopping local is another trend expected to stick as consumers have shifted living and working away from central business districts. The most expensive urban areas have come under the most pressure as people invested in durable assets – particularly homes and cars – in more suburban areas. Underscoring this trend, we have seen house prices in the UK (outside of London) reach a 4-year high, while house prices keep rising throughout the rest of Europe. Moreover, new car registrations in Italy and Germany (where electric vehicle incentives were offered) grew while sales slumped in Spain and France.
SpendingPulse™ 3m y/y growth rate (Aug 2020 - Oct 2020)
E-commerce spending was strong across Europe and the UK, where the adoption rate had been relatively slow. It nearly doubled from its pre-crisis levels during the crisis from about 11 percent to 20 percent at its peak. We expect about 20-30 percent of the Covid-related surge in e-commerce to be a permanent bump in the e-commerce share of overall retail spending.
Online and anytime shopping impacts the day and time when consumers make purchases, with fewer peak periods and fewer high-touch jobs. As e-commerce rapidly became a way to pandemic-proof a business, investment in digital was significant in 2020. Adoption by older generations and added convenience and lower costs for consumers will likely keep digital demand sticky in 2021. Germany stands out as the cash economy is seeing clear signs of becoming more digital.
The accelerated shift to digital has played out in increasing automation, broader sets of industries working from home and more touchless experiences. Going digital improves business productivity at the cost of employment, which has accelerated demand for lifelong learning and workforce re-training. With increasing returns to scale in a digital world, small firms potentially lose out, while tech platforms and services that help small businesses compete can thrive. The jobs outsourcing economy may benefit from the shift to remote work and investment in technologies that enable it.
Places where more tourism dollars go out rather than in during normal times, such as the UK and Demark, could benefit from these would-be-travelers forced to stay within their borders, keeping their holidays and spending domestic.
Road trips and the ability to control the environment while limiting interaction is likely to continue in 2021. Travel bans and protests bring back the challenges to the tourism industry that came with the first Covid waves. In the near term, this likely means more short-distance travel (again), less flying and more domestic tourism and staycations. However, there is significant pent-up demand from accumulated credits and miles that are likely to result in a flurry of rebooking flights as mobility restrictions are lifted.
The health pass, which travelers can provide to show proof of vaccination or a recent negative Covid test, will likely be in focus. It complements the emergence of trusted travel bubbles.
Source: World Bank, Mastercard Economics Institute
New business creation beyond e-commerce may be limited in 2021 as domestic and international uncertainty lingers. Manufacturing exporters could get a boost from stronger global auto demand, while other non-auto related exports could remain impaired by weak global growth.
New business creation beyond e-commerce may be limited in 2021 as domestic and international uncertainty lingers. Manufacturing exporters could get a boost from stronger global auto demand, while other non-auto related exports could remain impaired by weak global growth.
From trade wars over tariffs to questions over supply chain dependability, we have seen greater emphasis on local production with more control, such as manufacturing sovereignty. This trend also captures the push for ‘tech sovereignty.’ Originally the dependency on health-related supplies and equipment from outside the EU triggered this new focus. But the focus may go beyond healthcare in driving more manufacturing back to Europe as a conscious policy directive.
The International Monetary Fund (IMF) has changed its messaging on the need for austerity in the aftermath of a crisis. This is a sea change from the stance following the Global Financial Crisis of 2008-09. For Europe, this means economies that can easily finance themselves may continue to support economic recoveries. Announced stimulus plans in 2020 were not as large as headlines suggested once adjusted for contingent liabilities (see chart). A long-term plan is still necessary to stabilize fiscal deficits over the long term, but this can be delayed beyond 2021.
Mobility restrictions have impacted migration trends and may widen skills gaps in the labor force. This means labor-receiving countries such as the UK and Germany could see a labor shortage.
Major central bank balance sheets saw unprecedented expansions in 2020, which, along with ultra-low interest rates, has helped boost asset price inflation, particularly equity and home prices, and corporate debt issuance. Balance sheet expansion by the European Central Bank (ECB) in six months was nearly as big as that seen over the prior 12 years.
Source: IMF, Mastercard Economics Institute
Germany, France and Spain were already in weak economic positions even before Covid began. This weak ‘pre-existing condition’ makes the downturn and recovery even more difficult. Advanced economies have public debt-to-GDP ratios as high as they were post-World War II. The IMF supports doing whatever it takes to tackle the crisis for all economies with cheap funding costs.
Germany, France and Spain were already in weak economic positions even before Covid began. This weak ‘pre-existing condition’ makes the downturn and recovery even more difficult. Advanced economies have public debt-to-GDP ratios as high as they were post-World War II. The IMF supports doing whatever it takes to tackle the crisis for all economies with cheap funding costs.
The UK and European unemployment will potentially rise once fiscal support for jobs is phased out. So far, it has been delayed and may be delayed further depending on the pace of a vaccine rollout.
Source: Oxford Economics, Oxford University, Johns Hopkins CSSE, Bloomberg, IMF, Mastercard Economics Institute
data updated as of November 30, 2020
Asia Pacific
Most economies in Asia Pacific benefit from having contained Covid, but external demand and international travel are likely to hinder the recovery as the rest of the world catches up. Economies within the region with stronger domestic growth drivers are better positioned in 2021 as fiscal support and domestic tourism are unlikely to fully plug the gap.
We have seen a rapid acceleration in many pre-Covid trends that are expected to be long-lasting: the shift to e-commerce, automation, contactless interaction. With the AP region standing out with the fastest growing e-commerce adoption pre-Covid, we estimate that about 20-30 percent of the Covid-related shift to e-commerce will stick.
Many of the AP economies that contained the virus have seen recoveries in retail and services sectors as they re-open businesses post shutdowns. China stands out in terms of being a significant driver of global growth for 2021. The global deployment of vaccines and therapeutics are expected to keep the AP economy on a gradual recovery path.
Economies in the region where the pandemic was quickly controlled are outperforming. In internationally exposed economies, especially those reliant on trade and tourism, a global re-opening in 2021 is good news. Despite the Covid shock, Asia’s longer-term growth prospects remain positive due to a relatively young population and sustained prospects for growth in the middle class.
The drop in consumer spend was due mainly to practical limitations where people had less opportunity to spend rather than actual constraints - this could lead to a surge in spending once restrictions are lifted further
Mobility restrictions had a larger impact on things like travel, eating and shopping, where higher-income individuals spend than essentials such as rent and groceries where lower-income individuals spend. The ratio of people eating-in rather than eating-out is still below the pre-Covid level, matching the worldwide trend, which suggests we could see more positive momentum ahead despite the rebound in activity.
SpendingPulse™ 3m y/y growth rate (Aug 2020 - Oct 2020)
Source: SpendingPulse™, Mastercard Economics Institute
SpendingPulse™ reports and content, including estimated forecasts of spending trends do not in any way contain, reflect or relate to actual Mastercard operational or financial performance, or specific payment-card-issuer data.
Governments are pushing for an increase in digital, contactless payments to help reduce virus spread. Substitution of digital, contactless payments for cash is prevalent, with 54 percent of respondents to our recent regional survey saying they use cash less often. This may be a permanent shift in line with global trends; 80 percent of survey respondents said they will continue with the mix in payment forms they recently adopted or shift further towards newer payment forms. ASEAN is the fourth largest e-commerce market globally, and that’s likely to stay strong as the middle class recovers from the crisis in 2021.
Though Japan has the highest portion of consumers in the region using more e-commerce than before, they are among the least likely to continue post-Covid, according to our survey. Indian consumers have the highest share of adopters and more active users who intend to continue with e-commerce.
ASEAN is the 4th largest ecommerce market in the world and that's likely to stay strong as the middle class recovers from the crisis in 2021.
Digitization enables financial inclusion in emerging markets. This has become more important as the World Bank estimates that people in extreme poverty increased by 71 million worldwide in 2020. Government support programs using cashless and digital approaches may help counter the losses in incomes and boost financial inclusion.
Economies like China, Singapore, South Korea and the Philippines, which have large deficits in international tourism, stand to gain as spending stays home.
Thailand is the most vulnerable to suffering long-term damage from the global mobility restrictions as 10 percent of its economy in 2019 relied on international tourism. Hong Kong, New Zealand, Malaysia and Vietnam are other vulnerable economies that could lose 2-4 percent of their economies from a drop in international visitors.
The health pass, which travelers can provide to show proof of vaccination or a recent negative Covid test, will likely be in focus. It complements the emergence of trusted travel bubbles.
Source: World Bank, Mastercard Economics Institute
The hit to global trade has been less severe than feared, helped by work-from-home demand and the aggressive central bank and government policy support measures.
Intra-regional trade is a positive force, driven by ongoing trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) and potentially the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Asia Pacific also benefits from having the fastest overall growth rate compared to other regions worldwide.
Larger firms seem to be recovering faster than small- and medium-sized enterprises. SMEs are more vulnerable to the crisis since they lack liquidity buffers and the ability to go digital.
China’s domestic demand drivers need to keep accelerating as soft external demand and political tensions persist. This may mean government support measures remain in place. The structural reform agendas in India and Indonesia have been pushed to the forefront as fiscal and monetary policies are lacking.
China’s international infrastructure push, known as the Belt and Road Initiative (BRI), is by no means dead. Projects will be more focused on delivering strong returns. Attitudes towards the BRI favor investments continuing in Sub-Saharan Africa and South Asia (India).
Fiscal support for Australia’s economy was relatively large, even in the global context. This was the case even after downwardly adjusting the announced stimulus plans for contingent liabilities (see chart). This does raise growth risks once the economic support measures end. For example, coronavirus supplement income support was extended to the end of 2020.
Source: IMF, Mastercard Economics Institute
Australia has been running with stretched household debt for many years. During Covid, credit card balances were paid down, but high unemployment may become a factor boosting defaults in 2021. The government may avoid turning needed fiscal consolidation into a fiscal cliff, even if it means keeping a wide deficit in 2021. Fortunately, public sector debt is relatively low.
Australia has been running with stretched household debt for many years. During Covid, credit card balances were paid down, but high unemployment may become a factor boosting defaults in 2021. The government may avoid turning needed fiscal consolidation into a fiscal cliff, even if it means keeping a wide deficit in 2021. Fortunately, public sector debt is relatively low.
As households face elevated debt burdens, regulatory scrutiny of ‘buy now, pay later’ could accelerate in 2021.
Source: Oxford Economics, Oxford University, Johns Hopkins CSSE, Bloomberg, IMF, Mastercard Economics Institute
data updated as of November 30, 2020
Middle East & Africa
Many of the oil-importing nations entered the crisis with already vulnerable economic imbalances. Expect a gradual and patchy recovery in 2021, including oil-importing economies that depend on foreign worker remittances. The shift to digital was sharp in the Middle East & Africa (MEA), the smallest and second slowest growing e-commerce marketplace among the regions covered in this report. We estimate that 20-30 percent of the Covid-related surge in e-commerce to be a permanent bump in the e-commerce share of overall retail spending.
The region faces major challenges, including a global recession, the collapse of international tourism (particularly for East Africa), declines in foreign worker populations (half of the Gulf Cooperation Council (GCC) population is estimated to be non-citizen) and oil price weakness. Having handled Covid relatively well, the economic fallout includes large-scale job losses and severely weakened public finances in already highly indebted economies. Consumer tax increases to help plug fiscal holes may dampen spending recoveries.
The pandemic has created a multi-speed global recovery that favors low-touch over high-touch activity, high-income consumers over low. Young and fast-growing populations across many economies in MEA help to support the long-term growth outlook. However, the burden of large groups of unemployed youths (particularly in places like South Africa) can severely impair growth prospects. Diversification of oil-dependent economies away from oil dependency has a renewed importance in the aftermath of Covid.
Mobility restrictions had a larger impact on travel, eating and shopping, where higher-income individuals spend than essentials such as rent and groceries where lower-income individuals spend. We expect these trends to reverse as mobility restrictions are gradually lifted.
The United Arab Emirates (UAE) stands out for its immigration boom of earlier years, which was a major growth driver. How quickly the foreign workforce returns will play a role in the recovery.
South Africa’s relatively indebted households have benefited from the central bank’s ability to cut policy rates as it allows more exchange rate flexibility versus other regional economies. Large-scale job losses in hospitality and tourism is a major challenge, making employment recovery a long process.
SpendingPulse™ 3m y/y growth rate (July 2020 - Sept 2020)
Source: SpendingPulse™, Mastercard Economics Institute
SpendingPulse™ reports and content, including estimated forecasts of spending trends do not in any way contain, reflect or relate to actual Mastercard operational or financial performance, or specific payment-card-issuer data.
We see more digital adoption in markets around the MEA region. Nearly three-quarters of Egyptian consumers have shopped more online since February 2020, according to our recent survey. We estimate that 20-30 percent of the Covid-related surge in global e-commerce to be a permanent bump in its share of overall retail spending. Where available, online and anytime shopping impacts the day and time when consumers make purchases, with fewer peak periods and fewer high-touch jobs. As e-commerce rapidly became a way to pandemic-proof a business, adoption by older generations and added convenience and lower costs for consumers will likely keep digital demand sticky in 2021.
Meanwhile, the trend away from cash is expected to be more persistent in economies such as the UAE, which already has a resilient e-commerce infrastructure. Going digital improves business productivity at the cost of employment, which has accelerated demand for lifelong learning and workforce re-training.
The digital divide in East Africa remains a challenge. The e-commerce opportunity in Africa is, therefore, significant. The need to bring the population into the digital economy first through online banking solutions is paramount to delivering growth over generations to come. The opportunity for fintech disruption in Africa is high. Digitization enables financial inclusion in emerging markets as the World Bank estimates that people in extreme poverty jumped by 71 million in 2020. Government support programs using cashless and digital approaches may help counter the losses in incomes and boost financial inclusion.
Easing restrictions across most of Africa is good news, but it needs to also happen in the tourist-origin countries. Traditional tourism-surplus economies, such as Kenya and Egypt, will benefit from international tourism’s eventual return. Eastern Africa relies heavily on tourists from China and Europe; demand from China will likely recover more quickly than demand from Europe.
The health pass, which travelers can provide to show proof of vaccination or a recent negative Covid test, will likely be in focus. It complements the emergence of trusted travel bubbles.
There are changes in how travel companies advertise to customers, such as the ‘Stay Longer, Dive Deeper’ safari campaign in Africa. While leisure travel is expected to recover before business travel, long-haul trips are likely to slowly recover as travelers ease into signing up for longer and more remote adventures.
Source: World Bank, Mastercard Economics Institute
Brick-and-mortar business creation will be impaired in 2021 by economic risks and uncertain demand, tighter lending conditions and travel and entertainment challenges. In the meantime, online business creation continues to gain steam and other businesses “formalize” by officially registering to take advantage of government programs.
Governments with binding budget constraints around MEA will not be able to boost investment aggressively.
South Africa’s economy was already in a recession before Covid. The government is pushing for a major infrastructure development program worth US$135 billion over the next ten years aimed at reviving employment and the economy. Government focus on helping the loss-making State-Owned Enterprises (SOEs) means less fiscal room to support the economy during the ongoing crisis.
Those accustomed to receiving financing support from more prosperous oil economies may need to rely on multilateral support from organizations such as the IMF. Covid has hurt oil exporters and tourism-dependent economies. Help from international creditors will be vital in assisting fiscal policies that can support growth.
Emerging markets in the region had less room to support growth than advanced economies, seen by the smaller packages delivered in 2020 (see chart). Tough fiscal policy decisions to stabilize debt will be needed, such as wage freezes in South Africa’s public sector.
Room to use monetary policy to cushion economies in the region from the Covid shock is limited compared to developed markets. Foreign Direct Investment (FDI) support could become an important recovery driver. This may not be easy in the post-Covid world. Attitudes towards China’s BRI infrastructure project still favor investments continuing in Sub-Saharan Africa (SSA).
Source: IMF, Mastercard Economics Institute
Government debt sustainability risks will be in focus as many economies face large refinancing needs in 2021 and beyond. Governments will be under pressure to put fiscal deficits back onto a sustainable path, impacting growth. South Africa’s relatively indebted households have benefited from the Central Bank’s ability to cut policy rates as it allows more exchange rate flexibility versus other regional economies.
Stressed economies have led to stressed politics and unrest around the world, which deserve close attention. The link between high unemployment, high youth unemployment and social unrest is likely to remain an issue in 2021.
There is a growing focus for governments on the potential fallout from climate change. Climate change carries both short- and long-term risks that are not fully appreciated.
Source: Oxford Economics, Oxford University, Johns Hopkins CSSE, Bloomberg, IMF, Mastercard Economics Institute
data updated as of November 30, 2020
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