As we discussed in our previous update, the resurgence of the virus at the end of the third quarter of 2020 led to the tightening of restrictions in many countries. Whilst these efforts to minimise the spread of the virus may have reduced the severity of the ‘second wave,’ they also hampered economic recovery.
The uncertainty of the Brexit negotiations was also a significant obstacle for businesses to overcome, as many industries would have been badly affected by a ‘no-deal’ scenario.
As many countries struggle to balance managing the spread of the virus with economic recovery from the initial lockdown, there is much speculation as to when things will return to normal. Read on to find out how regions fared during the fourth quarter of 2020.
October saw the sixth consecutive month of GDP growth for the UK, rising by 0.4%. However, despite this growth, the GDP was still 7.9% below the level in February 2020.
The UK government’s implementation of a second lockdown in November, following a rise in coronavirus cases, also affected the country’s economic recovery. Whilst many businesses in the UK’s large service sector were impacted by the lockdown, they were not as badly affected as experts had previously predicted.
Whilst the IHS Markit services purchasing managers’ index, a measure of the sector’s economic health, saw a fall in November from 51.4 to 47.6, this was still above estimates.
The second lockdown also hit the UK retail industry, with sales falling by 3.8% in November. Whilst Christmas shopping in December bolstered retail sales, the reduced footfall on the high street has been noticeable as Boxing Day sales were 27% lower than in 2019.
In November, Chancellor Rishi Sunak announced that the furlough scheme would be extended in order to protect jobs and businesses. However, despite the government’s continued support, unemployment in the UK rose to 4.9% in December, which is 0.7% higher than it was in Q3.
After months of uncertainty, December also saw a Brexit trade deal agreed by the British government and the EU. This was a relief for many businesses who would have faced tariffs in the event of a ‘no-deal’ scenario.
The UK’s FTSE All-Share index rose by 11.6% during Q4 as the UK economy recovered from its large fall at the start of 2020. This chart shows the performance of the index from the start of 2020 to the end of the fourth quarter.
Source: London Stock Exchange
However, due to the rising rates of coronavirus infections throughout December, the government have implemented a third national lockdown and it is likely that this will have a negative impact on the economy.
Just as in the UK, many European countries implemented lockdowns at the end of Q4 in an attempt to slow the spread of the coronavirus. Since many of the new measures are less strict than those imposed earlier in the year, some experts hope that the fresh wave of lockdowns will have less impact than the previous ones.
Many European governments have high hopes that a vaccine will increase consumer spending, but issues with vaccine procurement could mean that enough doses will not be available to the EU until later in 2021.
European businesses which trade to the UK were also relieved that the prospect of a costly no-deal Brexit was avoided in Q4. Sectors such as manufacturing, many of which had been less affected by the pandemic, could have been severely impacted by the introduction of tariffs.
Whilst the US economy saw significant economic recovery in Q3 due to financial support from the Federal Reserve, the recovery in Q4 was much slower.
Whilst the US government implemented a new stimulus bill to boost the economy and help protect workers, it is not yet clear how much impact it will have. Whilst around 56% of jobs lost due to the economic effects of the pandemic have been regained, only around 7% of these were in Q4, indicating a slowdown in the economic recovery.
Despite unemployment surging during the pandemic, rising to a height of around 14%, unemployment fell in Q4 to 6.7%. This is down from 8.4% at the end of the previous quarter.
News of the election of Democratic candidate Joe Biden as the next US President prompted a surge of market activity.
Between the election and the announcement of Biden’s victory, the S&P 500 index (an index which measures the stock performances of the 500 largest US companies) rose by 5.4% and by December it had climbed by more than 8%.
China continued the strong economic recovery it experienced in Q3, thought partly to be due to its success in containing the virus. China’s strict lockdowns and rapid development of the Sinovac vaccine have helped to minimise the effect of the pandemic.
Strong demand for tech products and medical equipment meant that Chinese exports saw their highest monthly nominal level on record in November.
Q4 also saw the negotiations for a China-EU trade deal finally bear fruit after seven years of discussions. Whilst the deal is likely to take several months to be finalised, talks in December saw China commit to an “unprecedented level of market access for EU investors.”
Experts expect the deal to bring about closer partnership in sectors such as health, financial services, and renewable energy.
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