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China confirmed its status as the engine for global growth, publishing an initial estimate for Q1 2021 GDP growth of 18.3%. Of course, this figure was automatically boosted by the favourable base effect of comparison with the first quarter of 2020, when the Chinese economy came to an abrupt halt to focus on fighting the COVID-19 pandemic that originated in the country. But it only had to wait until the last quarter of 2020 to get back to its pre-crisis GDP level, which it did well before other major economies.
US: Return to pre-crisis GDP in sight
The first carriage behind this locomotive is the US, which is likely to reach its pre-crisis GDP level during the first half of 2021, if the strength of recent economic data and confidence surveys are to be believed. Retail sales published for March are a good illustration of this, as they are up almost 10% over the month, well ahead of expectations with one of the highest jumps since records began. The largest gain overall occurred in May 2020, as the first wave of infections eased. US consumer spending is now coming out of lockdown, galvanised by the aid cheques distributed to households by the Biden administration.
Eurozone brings up the rear: Germany as a symbol for Europe lagging behind
Lagging behind this China/US configuration, the eurozone is still mired in restrictions to combat the third wave of the pandemic and is struggling to roll out its stimulus package, which has been blocked by the German Constitutional Court in Karlsruhe. Once the driving force of the region, Germany is struggling to pick up speed, in a further indication that Europe is on a different track. The country’s five major economic institutes have just downgraded expected growth for 2021 by one percentage point, with estimates standing at just 3.7%, after a fall of 4.9% in 2020. GDP is therefore unlikely to return to pre-crisis levels before 2022.
Corporate revenues: Strong growth in the US and China
As the reporting season gets underway, corporate statements appear fully consistent with the macroeconomic outlook. As an example, the sales figures for LVMH, the showcase for French luxury goods, speak volumes: first quarter turnover rose by 86% versus 2020 in Asia (excluding Japan) and by 23% in the US, with a drop of 9% in Europe.
This should inspire investors looking to board the economic growth train to look for opportunities in Asia, either in companies based there, or in European companies generating a substantial part of their business there – don’t miss the Orient Express!
By Olivier de Berranger, CIO and Clément Inbona, Fund Manager, LFDE