Nordea’s cheføkonom, Helge Petersen, giver en positiv vurdering af økonomien og markedsudviklingen i det nye år – på grund af de ny corona-vacciner – men han advarer også om, at netop en forventet fremgang samtidig kan give så megen optimisme, at det kan give næring til spekulationsbølger, og han nævner den voldsomme stigning i prisen på Bitcoin som et eksempel. Hvad der går op, må også komme ned.
Chief Economist’s Corner: What goes up must come down
Vaccine hopes and prospects of an accommodative economic policy lift expectations for next year. But not everything can increase infinitely.
According to legend, the wise words “What goes up must come down” stem from the great British scientist Isaac Newton. That was his first thought when an apple fell on his head while he was sitting and thinking under an apple tree in the garden of his childhood home Woolsthorpe Manor where he had taken refuge during the plague epidemic.
The thought would later inspire the law of gravity, which was presented in his main work Principia in 1687.
And today with the coronavirus ravaging, we can actually explain the record-high economic growth in the third quarter of the year, which Donald Trump tried to use to his own advantage at the end of the election campaign, by tweaking the saying to the completely unscientific “What goes down must come up”.
Because the trend came easy; namely the collapse in the second quarter when the whole world locked down to keep the pandemic at bay. And when activities were resumed during the summer, growth naturally returned in full force. It’s pure tautology.
Therefore it’s not difficult to make an educated guess on the prospects for the near future. The second wave of the pandemic is rolling, the number of infected is record high and the world is locking down again. So the fourth quarter will be weak and will even result in negative growth in many countries. But as the measures are not after all as extensive as in the spring, the setback will also be less pronounced.
Economic fluctuations will thus become smaller and smaller and next year we may see a stable upward trend. That is not least due to the recent very positive vaccine announcements. Covid-19 vaccines from Pfizer, BioNTech and Moderna have shown convincing results in phase 3 trials and many more are on the way.
The vaccine is even expected to be produced in quantities large enough for mass distribution to large parts of the world during 2021 despite significant logistic challenges. This will clear the way for a return to pre-Covid-19 life.
Moreover, we can expect further tailwind from the economic policy. The fiscal policy is very expansive and there is generally international consensus about massive spending to avoid a long worldwide crisis in the wake of the pandemic.
However, lately Poland and Hungary have thrown a spanner into the works by vetoing the EU’s long-term budget agreement and recovery package of EUR 750bn, which were otherwise agreed in July. This happened because disbursement of the funds is subject to compliance with the EU’s values, especially the rule of law, which the governments in Warsaw and Budapest are largely ignoring these days.
But as both Hungary and Poland have much at stake for their economies in the agreements, most of the tough rhetoric, for example Victor Orban has compared the EU with the Soviet Union, is considered play to the gallery. And the parties will likely find a solution so that the agreements can be ratified finally this year.
There is less doubt that monetary policy in the Euro area will be loosened further in December. ECB Governor Christine Lagarde was clear about that at the latest meeting in October. However, it’ll hardly be an interest rate cut, but rather a change of the scope of the ECB’s special pandemic emergency purchase programme, PEPP.
It’s likely that the ECB will increase the amount used for purchasing securities and allow the programme to run beyond mid-2021 as previously announced. Moreover, the ECB may choose to make even cheaper liquidity available to the banks than today. Both measures would help keep interest rates down – on both short- and long-term loans.
For investors there are thus prospects of (yet) another good year. The global equity and property markets will be supported by increased economic growth and continued ultra-low interest rates.
That it may give rise to excessive speculation is a completely different problem. And here I can’t help but glance at the trend in Bitcoins. Since mid-March the cryptocurrency, which doesn’t have any of the properties normally associated with money and which is not backed by a central bank, has increased by an insane 250%.
That’s not sustainable, and we must cite good old Newton again: “What goes up must come down”. The question is simply when. My best guess is soon. Because it’s only in theory that exponential growth can continue infinitely.