Monthly letter from editor Andrea Fiano to you, reader.
FLIGHT. 35 NO. 2
What to do with the new strains of coronavirus? Could hypercontagious variants of the virus derail the nascent global economic recovery?
The IMF recently revised its World Economic Outlook recognizing all the risks (including the effects of lockdowns) and raised its forecast for global growth this year to 5.5%, after falling 3.5% l last year, with peaks of 11.5% in India and 8.1% in China, and 8% growth in world trade. The economic rebound, according to MUFG rate strategist John Herrmann, has strong tailwinds.
On the other hand, he notes, these new strains of Covid are strong headwinds. And what about the vaccination rate – slow in most of Europe and North America, and worse in many emerging economies?
“Much now depends on the outcome of this race between a mutant virus and vaccines to end the pandemic,” says Gita Gopinath, IMF chief economist, “and on the ability of politicians to provide effective support until “There is still enormous uncertainty and the outlook varies considerably from country to country.”
This is a major concern. Headwinds and tailwinds do not blow equally everywhere. As a result, the IMF now predicts that the gap between advanced and emerging economies will widen, alongside rapid growth in poverty — 90 million more people than last year. The agency expects some 150 countries to have lower per capita income than in 2019.
Our cover story this month explores the impact of these various winds on corporate finance. Corporate finance in 2021 will be characterized less by the issuance of debt and shares, and more by the spending of funds raised. After a record year due to very low interest rates, bond and equity issuance will likely slow down, while consolidation in different sectors dominates the world stage. Strong companies with rich balance sheets will boost M&A activity even more, but many companies have to deal with high levels of debt.
This will be easier to do in economies that are recovering more quickly. Yet the virus remains an unpredictable factor.