NatWest Markets Strategy & Sales

Cross Asset Insight | Rise of the Developed World
NWM StrategyJohn BriggsMichelle Girard
26 February 2021 11:42


Authors
John Briggs
Global Head of Desk Strategy
Stamford
+1 203 897 4689
Michelle Girard
Co-Head Global Economics &
Head of Strategic Coordination and Business Operations
Stamford
+1 203 897 2818

Contributors
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Rise of the Developed World

Updating the NWM COVID Growth Differentiation Framework

In our Year Ahead, we laid out our COVID Differentiation Framework, which scores countries based on virus management, policy response, and economic scarring.   A clear conclusion in November was Asian outperformance looked likely to be sustained strongly, even if the growth “delta” was likely to shift West in 2021, as a viable vaccine-sparked a consumer-led recovery.

Now, with the pandemic entering its next (and hopefully final) phase of vaccinations and sustained reopenings, we update our framework to include two new elements: vaccination distribution and “impetus to growth”, the latter gauging those economies best positioned structurally for a post-COVID normalization of both domestic and global activity (i.e. those where the service sector and exports account for a large percent of GDP).

Evaluating growth prospects through this expanded lens leads us to expect the following:

  • A general outperformance of the G10 versus emerging economies, supported by strong policy response and a strong growth impetus.

  • A much stronger relative performance from both the US and UK, with their respective scores improving greatly since November (their score momentum is high), though the US may be held back by relatively greater scarring and a poor track record when it comes to COVID case management.  Nonetheless, the US is showing strong upward momentum in early 2021. The UK performs strongly both on level and on momentum since November.

  • Within the major European economies, outperformance by both Italy and Germany looks positive from a level perspective, but they have quite poor momentum when looked at on the basis of changes since our November analysis. Asia is now more mixed, showing greater dispersion within the region. 

  • In EM, overall EM is seen as lagging, with Israel a clear exception.  In particular, Eastern Europe and LATAM generally underperforms in our new framework, which underscore our current selective take for the EM asset class as summarized here.

  

Please see the attached pdf for our full analysis.

  

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Version 10.12.2020