Successful vaccination programmes and economic stimulus packages are critical to hopes of a recovery, according to
"Households have been unwillingly saving during the pandemic; when restrictions are lifted, there will be a rush to return to restaurants, go clothes shopping and resume travelling," says
The second wave of the coronavirus has caused even more suffering than was feared. Conversely, economic prospects in
Biden and vaccines boosting the recovery
While
"Thanks to effective vaccines, we can now see light at the end of the tunnel. Growth prospects are also benefitting from a Brexit agreement finally being in place and a more expansionary fiscal policy set to be introduced under
A wafer-thin majority means that the
"The chances of a new support package of around
There may also be sufficient support for parts of Biden's
Pent-up consumption
The economic recovery is dependent on the success of vaccination programmes, which are the key to countries lifting their restrictions.
"Our assessment is that vaccinations, combined with a lower infection rate in the spring, may provide the foundations for a correction in economic activity from the second or third quarter of 2021," says
Household savings have hit a record high during the pandemic. Once restrictions are lifted, consumption is expected to shoot upwards.
"We expect part of the savings to be used to satisfy the pent-up demand for restaurant visits, travel, experiences, clothing and shoes, for example," says
The normalisation will also gradually lead to companies investing in new machinery and real estate, which will require new employment, thereby supporting the labour market. However, no definitive reverse in unemployment will be seen until later this year.
Stimulus packages are crucial
Several of the government's crisis packages, such as its programmes for furloughing and adjustment support, have helped temper the rise in unemployment and bankruptcies.
"It is important that stimulus measures in economic policy are not phased out too early. We expect fiscal policy measures to generate one percent higher GDP in 2021 than would otherwise be the case," says
The Riksbank's crisis response measures restricted the economic effects of the pandemic and mitigated the risk of a financial crisis. The Riksbank is now switching to a more expansionary monetary policy, which will support the recovery in 2021-22. Inflation will climb temporarily in spring, but underlying inflation will be suppressed by the recession.
"The Riksbank seems hesitant, but we believe it will not cut rates to negative," says
Financial markets are looking beyond the current economic slowdown. The stock market continues to tick along. Support through fiscal and monetary policy has drastically reduced the risk of bankruptcies, especially for larger listed companies.
"Our assessment is that central banks will continue on a path of expansionary policies. With the exception of
Threat of setbacks
Should the rollout of vaccination programmes be protracted, the recovery could well be delayed. Combined with inadequate support measures, risks include a rise in company bankruptcies.
"But the recovery could also proceed more quickly than we predict if restrictions and the fog of uncertainty lift promptly and act as an impetus for, not least, corporate investment," says
Overstated concerns about zombie companies
The debate surrounding zombie companies - weak companies that are only able to survive because of expansionary policies - is focused on the risk that they cannibalise healthy investments and, by extension, threaten financial stability.
However, killing zombie companies through raised interest rates risks causing increased unemployment and jeopardising future growth.
"When there is a recovery in demand, many of the companies that have been merely surviving will again start to flourish," says
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For the full report in Swedish, see Konjunkturprognos (https://www.handelsbanken.se/sv/foretag/placera/konjunkturprognos); in English, see Global Macro Forecast (https://www.handelsbanken.se/en/corporate/investments/global-macro-forecast)
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