News in Charts: Modelling global growth in a pandemic

Rarely has a recession been as synchronised as the one we experienced last year. Indeed, quarterly data from a panel of 88 countries show that 76 experienced a contraction in the first quarter of 2020, rising to 85 in Q2. Likewise, the recovery was highly synchronised, with all bar three countries returning to growth by Q3. Indeed, Fathom’s quarterly GDP proxy suggests that output was back to within 1% of pre-crisis levels by Q4.

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However, despite the synchronicity in terms of timing and direction, the economic impacts of the crisis differ substantially by country. Fathom’s Centrality Tracker uses cluster analysis to group countries with similar personality traits, and then models the sensitivity of each resulting ‘personality type’ to global economic shocks, allowing us to dissect the narrative of the past year thematically.

Unsurprisingly, given that tourism is a luxury for most, the model finds that ‘resort countries’ are among the most sensitive to global shocks. This was doubly so last year given the nature of the shock and its impact on cross-border mobility. Tourism is the largest sector for most of these economies, contributing around 20% of GDP on average across the personality type. Macau, where tourism receipts (mostly gambling) equate to almost three quarters of GDP, has seen its output shrink by roughly two-thirds. Fortunately, with new COVID-19 cases declining and vaccine rollouts now underway in advanced economies, there is light at the end of the tunnel for many of these resort economies.

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Despite their proximity to the initial epicentre of the crisis, many of southeast Asia’s technology producers showed a fair degree of resilience throughout 2020. This owes not just to a successful handling of the health crisis, but also due to continued strong demand for their products. Indeed, sales of semiconductors defied the odds and actually rose last year, most likely benefiting from changing working environments and a move towards remote working. Indeed, Taiwan and Vietnam were among a select group of economies which have already recovered pre-crisis levels of output, with South Korea and Japan not far behind.

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However, the outlook for these countries is not entirely rosy, with Sino-US trade tensions risking disruption in the region. Indeed, there is little to suggest that President Biden’s stance towards China is materially different from that of the previous administration, and the People’s Republic remains the largest market for many of the region’s technology producers. However, given that China’s role in technological supply chains is often as an intermediate producer (for instance in the assembly of devices such as mobile phones) and rarely as the ultimate source of demand,  it is hardly surprising to find that these economies remain more sensitive to demand shocks originating in the US than to those originating in China. It is thus entirely possible that a severing of US-China ties might not spell disaster for Asian technology producers, despite obvious short-term risks.

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Fathom’s Centrality Tracker shows that it is not just the speed of Chinese growth that matters for global economic outcomes, but also the composition of it. Given the rapid rebound in China’s economy and its return to a more resource-intensive growth strategy, it is hardly surprising to find that the model predicts that commodity producers are likely to be among the chief beneficiaries of the global economic recovery, a fact that investors appear to have caught on to already.

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