Economy 2021 : Last year around this time, we wrote a blog post with the 11 events likely to change the world economy in 2020. Like everyone else, we missed the most important one: the COVID-pandemic. But we also got some stuff right: something was in the works with RCEP, the US election (OK, that wasn’t too difficult), and that the German EU-Council presidency would face a few challenging issues. So, we decided not to be discouraged and have another shot at prognosticating  which events might shape 2021 – drumroll, please:

1)  January 20: President-elect Biden takes office

Trump’s erratic presidency is almost over. On January 20, President-elect Biden will take office. While this doesn’t mean things will be like Trump never was President, it will very likely mean a new style of politics. The US will work more with allies and like-minded countries to pursue its interests, emphasize the win-win nature of international cooperation, and reinforce multilateral institutions rather than undermining them.

Biden has made it clear that new trade deals are not a priority for him. Instead, expect to see more industrial policy aimed at strengthening US competitiveness. Also, don’t assume the US-China rivalry and trade war will just go away – dealing with China both from an economic and geopolitical perspective will remain a priority for any US president.

2)   February: the WTO will have a new Director-General – or not

The WTO was supposed to have a new Director-General by November. Although the Nigerian finance minister, Ngozi Okonjo-Iweala, obtained widespread support within the WTO membership, she was effectively vetoed by the US administration. Currently, the selection process is on hold. Possibly once Biden assumes the presidency, the deadlock will be overcome.

That would be good news for an institution that is in serious need of an overhaul. It is currently leaderless; the Trump administration’s actions have dismantled its Appellate Body and, so its ability to enforce multilateral trade rules, and it did not prevent a rise of export restrictions in the first COVID-wave, which aggravated the health response to the crisis.

It is possible that 2021 might be a good year for the WTO: Plurilateral negotiations on e-commerce and other issues are making progress. A more constructive US delegation might make a difference for the institution’s dynamics, and the Ministerial Conference in December might mark substantial progress. Well, at least one is allowed to hope.

3)   March: The Last Stage of Brexit: European Parliament votes on Trade and Cooperation Agreement

Brexit already happened (on January 31, 2020). So far, it hasn’t been very noticeable as 2020 was still the transition period, so the UK continued to enjoy the benefits of membership although it was not a member of the EU anymore. This ended on December 31, 2020. Now, Brexit will really mean Brexit.

And The Trade and Cooperation Agreement, concluded on Christmas Eve, is softening the blow – at least as compared to a no-deal scenario. This agreement is currently provisionally applied. The European Parliament still has to express its consent, though it is expected in March; this will be the Brexit drama’s closing stage.

4)   March: Launch of China’s 14th Five-Year-Plan (2021-2025) and Long-range Objectives through 2035 at the National People’s Congress

 

China’s five-year plans contain important strategic elements for the orientation of its economy. The current five-year plan, for example, featured the “Made in China 2025” strategy aimed at acquiring know-how in strategically important industries so that China would become a – if not the – leading industrial power by 2049.

While the full and final version of the new plan will not be released until March, the proposal put forward by the CCP’s Central Committee in November last year sets the stage for what to expect. It highlights, for example, the new development stage of “dual circulation.” Domestic economic activities (“internal circulation”) are to play a key role here and the starting point for all international economic activities (“international circulation”).

Thus, China will most likely focus much more on its domestic economy and strongly exploit its comparative advantage – a vast internal market. The proposal also highlights several green policies, which are expected to play an essential role in the new plan, charting the way to carbon neutrality in 2060. A strong focus remains on technological progress and indigenous innovation, so to further reduce independence on foreign technology.

Growing tensions between the US and China have painfully shown that this is a vulnerable point with the potential to hamper China’s development. It should be clear by now that the next global superpower is prepared to go to great lengths to overcome this weakness.  Chinese leadership certainly regards this as an important prerequisite to achieving the long-term objective of reaching the middle level of high-income countries for GDP per capita by 2035.

5)   July 23: 100th anniversary of the Chinese Communist Party

The Chinese Communist Party (CCP) will celebrate the 100th anniversary of its founding in 1921 and use this as an opportunity to publicize its successes. Economically, the CCP has undoubtedly been remarkably successful, transforming China from a small, poor economy to the world’s largest economy.

Absolute poverty has been almost eradicated, and the economy is increasingly driven by domestic consumption and innovation. China is no longer simply the assembly line for the world. The CCP has also proven to the world that democracy and a market economy do not necessarily go hand in hand, so far disappointing hopes in the West that – sooner or later – China would experience a similar fate as the former Soviet Union.

Politically, the record of the CCP is much less impressive. China is still a country that represses civil liberties, does not respect human rights, to say nothing of the crimes committed in the CCP’s history. Whether in the long-run successful technocratic management of the economy is enough to satisfy the demands of the Chinese people remains to be seen.

6)   July/August: Olympic Games in Tokyo – or not

The jury is still out if we are going to see the Olympic Games in Tokyo this summer. While rising infections during the winter months might make it seem inconceivable to hold such a large event, widespread vaccinations might have changed the picture by the summer.

If they were to be held, they are unlikely to have the same economic impact as in previous games given that international travel and therefore attendance will likely still be limited. However, if everything goes according to the all but certainly meticulous health and safety plan of the organizers, the Games could become a turning point in the pandemic and a template for future mega-events.

They could be seen as a hallmark for the start of the post-Covid19 era and provide important lessons about preserving mass events during times of crisis. If the Games go wrong- see predication # 9).

7)   August 17: Microsoft pulls the plug on the Internet Explorer

It is a digital dinosaur and has been outdated for longer than I remember. It has always been terribly slow, and it is slow to disappear. It is still dear to some and at the core of the digital infrastructure of some organizations. Well, it will finally disappear and give way to Microsoft Edge – or whichever browser you prefer (or your organization lets you use). I won’t miss it.

8)   September: Covid is still not over, and the economic fallout is starting to become visible

Just a reminder that the vaccine’s arrival in developed economies doesn’t mean the health crisis is over. While by September, it is likely that vaccinations in most developed economies will be well underway, most developing economies might still have to wait until some point in 2023 until vaccinations take place on a wide scale.

This implies continued economic disruption in many parts of the world – likely to include developed economies, where the economic fallout of the pandemic might only become fully visible once support programs are gradually retracted. Zombie firms might actually die, and hidden unemployment become visible. 2021 might be a year of bad economic news – even though your stock broker currently tells you otherwise.

 9) September 26: Germany votes for a new Chancellor

Angela Merkel is one of the longest-serving senior politicians in Germany. In 2021, she will end her career after 16 years. It is still unclear who will be the next party leader of the CDU (expect news on that around January 15-16). It’s also far from clear what results of these elections might bring: currently, the Greens are unusually strong in Germany and might even have a shot at the Chancellor’s job.

But the CDU also remains strong. 2021 is going to be an interesting and defining year in German politics. And as German politics go, much may depend on coalition negotiations after election night – which can take some time. In any case, with Angela Merkel leaving the stage, a longstanding constant of Europe’s economic and foreign policy will disappear, and a new leadership constellation and balance will emerge in Europe? More influence for Emmanuel Macron? Or Mark Rutte? We will see…

 

10) October 22: Japan general election

If the Olympic Games go as planned, they are unlikely to significantly impact the Japanese election. But if they go horribly wrong, they might very well taint the record of the current government. In 2020, Shizo Abe resigned as prime minister. He was succeeded by Yoshihide Suga, who pledged to continue most of his politics, including the “Abenomics” strategy of fiscal and monetary expansion, structural reform, and trade policy liberalization, designed to revive Japan’s stagnant economy.

He has also taken a more low-key approach to international affairs, which could be increasingly at odds with China’s more aggressive approach in its near-abroad neighborhood and the new US administration’s desire to shore up more regional cooperation (against ChinaI).  At the end of October, the general election will put Abe’s legacy and Suga’s policy to a vote.

11) October 30/31st: G20 Summit in Italy

During the Trump years, it was a success if G20 summits were at least able to agree on the wording of the final communiqué. But the G20 could be a forum that is more meaningful for global economic governance. In the 2008/2009 financial crisis,  the G20 was instrumental in putting in place a recovery package. It is possible that under a new US administration, it may be able to play a stronger role again. So this G20 Summit could be more interesting than previous installments. And while we are at it: Is the G7 still a thing?

In 2020, the US was scheduled to organize a Leader’s Summit in June but, not even a virtual conference materialized (or virtualized?). In 2021, it is the United Kingdom’s turn to take over the presidency. Watch Boris Johnson step up to the challenge and bring his unorthodox style to the best-choreographed event diplomats have ever invented!

12) November 12: COP26 in Glasgow

What is true for the WTO and the G20 also applies to the climate change conference in Glasgow. While Trump withdrew from the Paris Agreement, Biden is keen on joining it again and driving the US’s green agenda forward. The EU, China, Japan, and other major economies have pledged carbon neutrality by 2050/2060.

On the one hand, there might be a political window of opportunity for increased climate action. On the other hand, we might see a very different ballgame if the pandemic’s fallout has yet to be felt (see 8). “Economic recovery first, climate change second” might become the rallying cry for those affected most severely by the recession – and those who still oppose any meaningful progress on national and international commitments to combat climate change.”

Will 2021 be a better year than 2020? The cautious answer is probably yes. Covid19 will still be around for 2021 – but at least in the developed world, it will be gradually less important. At the same time, several events – Biden’s Presidency, important high-level conferences, elections in other countries – might mean a fresh start for multilateral policy approaches and institutions, in trade as much as in climate change policies.

2021 could be the start of a more constructive and collaborative approach to global challenges. But bear in mind that even if 2021 brings a good start, it will take years to tackle the fallout of Covid19 and other pressing global challenges. Quick fixes are not enough.

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