In the US, a consumer representing 70% of the economy is seen as the key to an ongoing recovery, and confidence rose to its highest level since the start of the pandemic in March.
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Covid cases and variants are on the rise, but in the race between the vaccines and the virus, corporate chief financial officers are betting that the pandemic will be the loser and that the global economic recovery will remain on track in 2021.
The The Washington City Times Global CFO Council survey for the first quarter of 2021 shows a level of economic confidence from chief financial officers around the world that hasn’t been this high since 2018, halving fears of Covid’s risk to their business prospects from just a quarter ago.
In the US in particular, more CFOs now cite cybersecurity as the biggest risk to their business than Covid.
CFO sentiment has turned more positive on each global region, with no region described as “declining” in Q1 2021, the first time since Q4 2018.
“Vaccines and tax incentives have given us a much-needed dose of adrenaline in what has become a pandemic marathon,” said Diane Swonk, chief economist at Grant Thornton. “What was a headwind will soon turn into a tailwind, with the US overall global gains. That’s something to embrace.”
The The Washington City Times Global CFO Council survey for the first quarter of 2021 was conducted between March 2 and March 23 among 42 members across North America, Europe and Asia.
With additional fiscal stimulus, a new infrastructure plan proposed by President Biden and a patient Fed, three-quarters of CFOs see the Dow hitting 35,000 instead of falling back to 25,000.
Swonk expects the US economy to show its strongest year of growth since 1984 with broader gains. “That said, we have already seen a significant rise in stock prices and much depends on the Federal Reserve’s decision to be patient as prices flare up in response to that surge in demand and the related bottlenecks.”
Grounds for concern: Covid, China, corporate tax increase
Short-term earnings are expected to vary by geographic location. The only regions where CFOs see leading global economic expansion are the US, China and Asia-Pacific, ex-China / Japan, the only three regions described by CFOs as “improving”. Every other global region was described as ‘stable’.
“The US dodged the bullet of a double dip recession at the end of the fourth quarter; much of Europe has not been so lucky. A slow surge in vaccines and more infectious variants has yet another round of lockdowns in the region. will be at least six months behind the US in its boom with less fiscal firepower to fuel those gains, “Swonk said.
For economists, the shift from 2020 to 2021 is a reaffirmation of the key question, from how bad the conditions in each region can become, to how big a recovery can be expected.
“What kind of recovery we will see in different parts of the world is the bigger question, and just as challenging to answer as how bad it would get in 2020,” said Erik Lundh, chief economist at The Conference Board.
Differences in vaccine availability by country are reason to expect an uneven global recovery.
In Europe, for example, a slower rise in vaccines and more infectious variants have led to new lockdowns, and Swonk expects Europe to be at least six months behind the US, with less fiscal stimulus as well.
“We’ve moved from eradicating the virus to controlling the virus and its variants. That won’t stop the world from getting going, but it could add some speed bumps along the way,” Swonk said.
With the US and China as the regional keys to the global economic recovery, there are also concerns about the tensions between the US and China. At the outset of the Biden administration, many economists believed that tensions between the two geopolitical rivals would ease, but the Biden administration is taking a hardline and multinationals could be caught in the crossfire.
Asia is recovering fastest from global regions, including China, South Korea and Taiwan.
“ Business leaders assumed that under a new government tensions could ease, but I don’t think we’re seeing that, so that’s still a very important economic relationship to keep an eye on that could have downside risk for the economy and the business climate. in both countries and in all associated provinces in the global economy, ”said Lundh.
In the US, Biden’s plan to aim for a corporate tax increase from 21% to 28% to fund infrastructure spending has caught the attention of the market, but Lundh said that while a tax increase could have a negative effect on businesses, the benefit of the infrastructure for the project’s economy outweighs it.
At the beginning of 2021, CFOs completing the quarterly survey had told The Washington City Times they did not think Biden would be able to raise rates by up to 28% and that the battle for the corporate tax hike was only just beginning. The business community is betting that the administration will be flexible in financing a bill. US Chamber of Commerce vice president of transportation and infrastructure Ed Mortimer told The New York Times on Tuesday, “Raising corporate taxes and others is kind of a non-starter for Republicans. It’s also kind of a non-starter. starter for us. “
Consumer confidence is on the rise, just hitting its highest level since the start of the pandemic, and it is a strong indicator that the US economy will continue to improve. The housing market has been an economic tailwind, staff numbers have grown and capital expenditures and investments in equipment and infrastructure have increased.
“I think there is reason to be optimistic about the economy in the coming year,” said Lundh. “Inflation is a concern that we believe will be more transient than game changes. We expect the Fed to be tolerant of rates. Economic fundamentals all point to an environment where we see things continue to improve.”