The Day at a Glance | January 14 2021

The Top

· Biden will present a new stimulus proposal in the United States.

· China closes 2020 with historical trade surplus.

· The German economy stagnates in the 4Q20 (0% quarterly), but could avoid a recession at the start of 2021.

· Economic indicators: Jobless claims grow strongly to 965 thousand in the US (795 thousand e.).

Economic environment

Joe Biden will present a new fiscal stimulus proposal today. It`s assumed that the plan could reach 2 trillion dollars as it could include raising direct deposits to citizens to 2,000 dollars, propose extending extraordinary unemployment aid and it could include some details that were taken out of the previous package, such as direct aid to State and local governments. Biden has assured that he will negotiate to gain support from Republicans and finalize the new package`s approval; even though the control his party has over Congress could make efforts somewhat idle. The news has reinforced a rise in interest rates in the long term in the US. Republicans were against similar proposals last year due to the required amount of spending and the implications this would have on the fiscal deficit.

Chinese imports and exports exceeded estimates during December. The most recent figures of China`s trade balance confirmed an 18.1% annual expansion in exports, while imports grew 6.5%, both figures above estimates. With this, the trade surplus reached 535 billion dollars in 2020, a 27% increase with respect to 2019. The data confirms that China`s recovery remains strong and is boosted by foreign demand, especially regarding medical supplies and electronic goods. It`s expected that with the fiscal stimulus in the US, exports will remain in expansion at the start of 2021. In fact, China`s trade surplus with the US increased 7% to 317 billion dollars in 2020, even despite the fact that US imported products grew 47% annually in December (the largest increase since 2013). High demand for Chinese exports came from the global need for protective medical equipment during the pandemic and electronic goods that facilitate working from home. Additionally, the government`s control of the virus allowed Chinese factories to meet global demand, setting the Asian economy as the best performing economy in 2020.

The German economy didn`t grow in the 4Q20 and closed the year with a (-) 5% contraction, according to early figures. The acceleration of the virus`s spread and the implementation of mitigation measures halted the German economy`s recovery at the end of 2020. However, it was more resilient that expected due to the large fiscal support on behalf of the government (whose deficit increased to 4.8% of GDP, its largest level since 1995) and the large manufacturing sector, which maintained a firm recovery. The manufacturing sector, which makes up a fifth of the economy, has had greater flexibility to adapt to the restrictions imposed by governments and has allowed itself to reactivate – contrary to what has been seen with services. The extension of confinement measures in Germany will mostly impact the 1Q21, when a (-) 3% contraction is expected to occur; under risks of these measures being extended for another 10 weeks, in addition to a slow vaccination program, according to Chancellor Angela Merkel. The German economy will not reclaim a growing trend until 2Q21. However, the outlook looks more complicated in other European economies, such as France and Italy, where 9% contractions are expected to be recorded in the 4Q20; meanwhile, in the United Kingdom, the contraction could reach 10%.