The Impact of the Great Pandemic: Rich and poor economies are on diverging paths.
The US economy is recovering and is expected to grow 6.5% this year, the highest rate since 1984. Other rich countries are also recovering: China’s economy expanded to a record 18.3% in the last quarter, and the United Kingdom is growing at the fastest pace since WWII.
Key Recovery Drivers:
- Vaccines: Rich countries have spent billions securing early vaccines for their citizens. In 2020, the United States spent $ 12.4 billion developing and delivering vaccines. Now half of US adults have been vaccinated. But while rich countries are recovering, poor nations are lagging behind. Covid is on the rise, economies and health systems are collapsing and poverty is on the rise. The pandemic caused the first rise in extreme poverty since the 1990s. Emerging markets are vaccinating less than a third of their citizens this year, up from 72% for developed ones.
- Financial Aid – Stimulating the Economy: Rich countries have been able to offer stimulus programs to support their economies. The US spent an impressive $ 5 trillion, more than any other country. But while rich countries are recovering, poor nations are lagging behind. Covid is on the rise, economies and health systems are collapsing and poverty is increasing. The pandemic caused the first rise in extreme poverty since the 1990s. Emerging markets are on track to vaccinate less than a third of their citizens this year, versus 72% for developed ones.
May 2021 moved in parallel lines concerning markets trying to absorb current levels. Many governments removed bans and lots of lockdowns ended which helped economies recover.
In the US, attacks between Israel and Gaza created a slight political turbulence which was put aside quickly. Economic releases were at their majority positive. Exports and imports increased to $200bln (from 187) and $274bln (from 258) accordingly. Unemployment was announced at 10.4% from 10.7%, retail sales remained stable (0%) and industrial production was marginally higher by 0.7%. Real estate did not show remarkable signs as new permits were up just by 0.3% and the start of new buildings declined by 9.5%.
In Europe, May was an exceptional month as hundreds of thousands of stores, restaurants and businesses restarted selling and producing their products and services due to the ending of many lockdowns. However, economic releases did not yet show this recovery which will appear in the coming months. In the eurozone, retail sales increased by 2.7% (from 4.2%) in March and the GDP declined by 1.8% for the first quarter of 2021. Consumer Price index was announced at 0.6% (from 0.9%) bringing to surface the deflationary pressures in the zone of euro where ECB is optimistic that the next months will recover due to liquidity injections to banks, businesses and consumers which will be transferred to the real economy increasing demand for goods and services.
In Greece, May was an indifferent month and the stock exchange faced a drop (more than 2%) when Alpha Bank announced a capital increase of 800mln. In the bond market, there was interest at the corporate bond issue of Costamare which was covered 6.7 times with a yield to maturity at 2.7%.
The EUR/USD moved towards 1.22 and is expected to strengthen more as its trend seems quite strong due to the supply of the dollar.
Our preference remains the american equities versus european stocks where we hold no position. US equities hold 60% of the total portfolio which the technological sector holding 60%. Cash remains crucial as corrections are buying opportunities often.
S&P-500 (yearly graph)
Dax-30 (yearly graph)
EUR/USD (yearly graph)
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