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economy 2021

Overview
Resilience, Reinvention and Risk.

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.

Consumer
Home is Where the Spending is.
WITH FEW PLACES TO GO, CONSUMERS HAVE RE-EVALUATED CAREER CHOICES, AS WELL AS WHERE AND HOW THEY LIVE. THIS SETS UP THE 2021 FOCUS ON THE HOME, WELL-BEING AND RE-SKILLING.

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.

Digital
The Online and Anytime E-Conomy.
FROM HOW WE WORK TO WHERE BUSINESSES SELL, THE FUTURE IS DIGITAL. WE ESTIMATE THAT ABOUT 20-30 PERCENT OF THE PEAK IN THE COVID-RELATED SHIFT TO E-COMMERCE WILL STICK.

Based on the consumer reaction in economies that have lifted restrictions, we estimate that 20–30% of the Covid-related shift to e-commerce will stick.

Source: Mastercard Economics Institute

This presentation and content, including estimated economic forecasts, simulations or scenarios from the Mastercard Economics Tnstitute, do not in any way reflect expectations for (or actual) Mastercard operational or financial performance.

Travel
Grounded and Waiting for Clearance.
ROAD TRIPS REMAIN EN VOGUE, DRIVEN BY DOMESTIC LEISURE TRAVEL, WHILE COMMERCIAL AND INTERNATIONAL TRAVEL REMAINS HAMPERED BY MOBILITY RESTRICTIONS AND SUPPLY-SIDE CONSTRAINTS.

Source: World Bank, Mastercard Economics Institute

Business
Small Business, Big Challenges.
NEW BUSINESS OPENINGS ARE MOSTLY USING VIRTUAL STOREFRONTS IN 2021; EXISTING BUSINESSES HAVE GONE OMNICHANNEL, MOVED FULLY ONLINE OR CLOSED UP SHOP.

74%


of new retail businesses created in the US since April were non-store retailers

Source: US Census Bureau, Mastercard Economics Institute

Policy
Debt, Demographics and De-globalization
AS GOVERNMENTS LOOK TO DEPLOY MORE TARGETED STIMULUS IN LIGHT OF CHALLENGES FROM DEBT, DEMOGRAPHICS AND DE-GLOBALIZATION, MANY GOVERNMENTS WILL PRIORITIZE EQUITY AND INCLUSIVENESS FOR MORE SUSTAINABLE ECONOMIC GROWTH.

Source: World Bank, Mastercard Economics Institute

Risk
Promising Vaccine Progress, but Economic Risks Remain
A VACCINE AND THERAPEUTICS TO TREAT COVID MAY NOT PRODUCE THE DESIRED LIGHT-SWITCH EFFECT, WHILE WE COULD SEE ADDED CHALLENGES FROM CLIMATE CHANGE, SOCIAL UNREST AND DEBT DEFAULTS.

Source: Oxford Economics, Oxford University, Johns Hopkins CSSE, Bloomberg, IMF, Mastercard Economics Institute

data updated as of November 30, 2020

Notes & Disclaimer

About the Mastercard Economics Institute

Mastercard Economics Institute launched in 2020 to analyze macroeconomic trends through the lens of the consumer. A team of economists, analysts and data scientists draws on Mastercard insights - including Mastercard SpendingPulse™ - and third-party data to deliver regular reporting on economic issues for key customers, partners and policymakers.

Disclaimer

© 2020 Mastercard International Incorporated. All rights reserved.

Disclaimer:   This Mastercard Economics Institute presentation (This “Presentation”) and content or portions thereof may not be accessed, downloaded, copied, modified, distributed, used or published in any form or media, except as authorized by Mastercard. This presentation and content are intended solely as a research tool for informational purposes and not as investment advice or recommendations for any particular action or investment and should not be relied upon, in whole or in part, as the basis for decision-making or investment purposes. This presentation and content are not guaranteed as to accuracy and are provided on an “as is” basis to authorized users, who review and use this information at their own risk. This presentation and content, including estimated economic forecasts, simulations or scenarios from the Mastercard Economics Institute, do not in any way reflect expectations for (or actual) Mastercard operational or financial performance. 

Overview
Supercharged E-commerce, Watch for Sputters

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.

Overview
Hits to Remittances and Tourism Will Continue

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.

Overview
Vaccine Hope for Ending Stop-Start Economy

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.

Overview
An Uneven Recovery Across the Region

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.

Overview
Covid, Declines in Tourism and Oil Prices Cause Slow Recovery

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.