There are lots of reasons for economic optimism right now, and many against it, too. Here’s my take on what’s happening in this topsy-turvy world right now.
In the last few weeks, we’ve seen two major changes that are having a bearing on markets and economies globally. They are, of course, the election of Joe Biden as POTUS and the arrival of apparently effective vaccines against COVID-19.
As ever, perceptions do drive behaviour and so, if economic forecasters see green shoots, then overall we can expect a turnaround. But make no mistake, the real downturns in national income across the world are currently having a real, negative impact on all of us. And just because indices go positive at the macro level, does not necessarily mean we’re all going to be better off.
One of the striking features of the COVID crisis has been its impact on the less well-off around the world. Inequalities are growing and there are changing patterns of demand in the economy as a result. Retail is going through a revolution as only the nimblest of online operations offer hope for the sector, right now.
So, let me give you my 3 best, current reasons for economic optimism first:
Reasons in Favour of Economic Optimism

1. The Biden Bounce and Vaccine Euphoria
Those 2 big changes had quite an impact on stock markets. The FTSE 100, at 6367 on 30th November is 14% up on its level on 30th October. In the US, The Dow jones was up 3% in just one day (8th November).
For perspective though, despite strong growth in November, the FTSE 100 is still 17% down on where it was at this time last year.
Within this there were sector winners and losers, of course. Simon Jack’s article on the BBC website explains some of those movements.
2. Fiscal Stimulus Packages Around the World
Apart from sentiment-driven, potentially short-lived market gains, there are also some positive fiscal signs to fuel our optimism. In his Autumn spending review, Chancellor Sunak outline a strong stimulus package of support for the British economy for the foreseeable future. That will have a significant effect. Even if it is dwarfed by the expected $3-4 trillion fiscal boost Biden’s believed to be pushing for.
3. Growth Forecasts
Looking at the latest GDP figures, the UK has taken one of the largest hits in 2020, currently expected to be 11.5% down on the full year. On the Capital Economics latest forecasts (27/11/20), that’s the worst performance among leading economies in the world. But for the near future, they estimate our growth to be 4% in 2021 and 5% in 2022, better than most other economies.
Reasons Against Economic Optimism
1. Uncertainty
Uncertainty breeds market volatility, as I’ve discussed in blogs before. And this year is more uncertain than we’re used to. ECB President, Christine Lagarde put it like this, “From a huge river of uncertainty, we see the other side now. But I don’t want to be exuberant about this vaccination because there is still uncertainty” about the production and distribution of the vaccine.
There are many obstacles to recovery and the uncertainty will put pressure delivery of it.
2. Brexit Looming
And for those of us in the UK, politics aside, Brexit is getting closer. With 1 month to go, there’s still no deal in place and this is estimated by many to be creating a blockage to future growth in the UK. Brexit itself is a major source of the uncertainty facing the UK economy, according to the Bank of England.
3. Time Needed to Recoup Losses
The depth of recession and the forecast growth afterwards mean that it’s going to take several years to get back to where we were at the beginning of 2020. That’s in terms of national income and also the value of many individual stock portfolios. Most analysts say 3-5 years.
Nevertheless, I’d hope that professional investors will be able to improve on the average figures for recovery.
In Summary
There’s no clear prediction from me. The levels of uncertainty are very high right now, although there are most definitely some positive reasons for economic optimism.
Make sure you regularly review your investments and talk to a professional adviser, like me. Remember, as I frequently say, take a long-term view of your investments and avoid panic buying or selling.