Since the beginning of the pandemic, Bankinter’s Research arm has adopted a stance we call “grounded optimism”. Despite the huge uncertainty caused by CV-19 in recent months, we argued that it would generate an “impact shock” and would not cause enough damage for a recession to take place after 2020. And everything seems to go this way; everything that could go well, went even better than we could expect. We highlight six key factors for the economic context, which were or are on track to reach a positive outcome: (i) vaccines, which arrive faster than ever, and with high levels of efficiency; (ii) the American election results, with a Democratic presidency, but Republican scrutiny; (iii) the strong proactivity of central banks in supporting the economy; (iv) the recent signing of the Regional Comprehensive Economic Partnership in Asia, which went unnoticed; (v) the second American fiscal stimulus package, about to be approved; and (vi) the formal Brexit agreement.

If 2020 was a year when markets took a leading role – with slumps in the first quarter, unprecedented since 1987, strong recoveries since June and the S&P 500 reaching historic highs – we believe that all the aforementioned factors will make 2021 a year when economic recovery will take the leading role. As a rule, markets always move ahead of the economy. And that’s what triggered the strong stock index recovery in the second half of 2020. Now, in the coming months, the anticipated return of economic growth will prove the markets right. As for the factors that will dictate the course of the global economy, we identify the following: (i) the successful distribution of the vaccine during the first half of 2021, (ii) the American policy that now seems less conflicting, specifically in relation to issues such as the relationship with China and (iii) proactivity, which should be maintained by central banks and governments when it comes to support the economy.

Currently, and in the current process of revival of the economic activity, a country in particular is making progress compared to the rest – China. The impact of the virus in China occurred before the rest of the world and its experience in managing pandemics proved very important. Firstly, lockdown containment measures helped reducing contagions, and secondly, public coverage of healthcare expenditures was crucial. In addition to this ability to deal with the virus, the Central Bank and the government has still room for maneuver to implement stimulus packages. Finally, it is worth mentioning the signing of the RCEP (Regional Comprehensive Economic Partnership), a free trade agreement between 15 countries in Asia-Pacific, was recently signed. Negotiations took 10 years and this partnership covers one third of the world population. This is yet another factor that shows that economic dynamism and decision-making are increasingly moving to the Asia-Pacific region.

As for the evolution of the Portuguese economy, we argue that Portugal would be more impacted by the pandemic than the EU average. The high weight of tourism, levels of public debt that remain very high and a debt cost that is higher than in the core countries were a clear proof of this. Still, we see positive signs in the evolution of our economy. Fiscal support has kept the unemployment rate at controlled levels from the outset and the real estate market continues to show resilience. Both factors will be very important in the medium term to secure the purchasing power and the accumulated wealth of the Portuguese. In addition, European funds are a huge opportunity to resume activity and to structurally increase the competitiveness of the Portuguese economy – it remains to be seen whether this opportunity will be seized.