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From climate change and geopolitics to new growth models, David Skilling says 2021 will see widespread public and private sector innovation - as well as more economic and political volatility

From climate change and geopolitics to new growth models, David Skilling says 2021 will see widespread public and private sector innovation - as well as more economic and political volatility

By David Skilling*

In this last note of an extraordinary 2020, I offer some thoughts on five economic and political dynamics that I think will profoundly shape 2021 across advanced economies.

1. China pushback and a fragmenting global system.

China’s increasingly aggressive behaviour around the world (Australia, Sweden, Hong Kong), as well as more explicit strategic economic rivalry, is generating growing pushback. The US trade wars, and growing frictions in technology, are one example. Many European countries are also taking a firmer line, no longer separating economic and political aspects of the China relationship.

The new Biden Administration will sharpen these tensions in 2021. It will likely take a more structured approach to the US/China relationship – and will ask more of its friends and allies on China. Despite a greater commitment to multilateralism in the incoming Administration, this may lead to a more fragmented global economic and political system. 

Advanced economies – and particularly small economies – will have to make hard choices in 2021 on positioning. And firms won’t be able to avoid these decisions either.

Even partial decoupling from China is not straightforward; and China’s strong recovery this year has been a source of support for many advanced economies.  But the global economy will more explicitly pull apart in 2021.

And China’s new ‘dual circulation’ policy approach, with a greater focus on building domestic strengths, will reinforce this decoupling process.

2. A new social contract.

Four years on from the political earthquakes in the UK and the US, the populist wave is receding with a win for President-elect Biden, what looks likely to be a (thin) Brexit deal, and competent governments performing much better through the Covid crisis. 

Although this is far from a return to the status quo ante, the dynamics that contributed to these political shocks are increasingly recognised. Governments are under pressure to renew the social contract for a changed world so that the gains from progress are more broadly shared. 

And the response to Covid-19 has accelerated the development of a larger, more active government. This is markedly different than after the global financial crisis when there was not a structural policy response to the clear economic, social and political pressures.    

2021 and beyond will see policy innovation at a scale not seen for decades to respond to existing issues as well as the structural Covid recovery process. This will include redesigned social insurance and public goods provision, and new types of industrial policy.  

In many ways, small advanced economies provide a guide as to what this might look like, having delivered strong economic and social outcomes while embracing globalisation and technology.

3. The world is going green.

Green issues will move even more quickly into the mainstream in 2021. Governments and firms are making increasingly ambitious commitments in response to growing citizen, shareholder, and customer pressure; as well as the increasingly obvious physical realities of climate change.

This has been accelerated by Covid-19; many of the recovery packages have significant green transition elements.

The economics of the green transition are improving, with the cost of deployment of renewables plummeting. The speed of deployment of renewables is likely to continue to exceed expectations. Indeed, the pricing of clean energy stocks has run well ahead of other benchmarks in 2020, while oil and gas stocks have lagged.

Governments will act with intensity to create growth engines in this space, and to support firms and households to operate in a lower emissions manner.

More stranded assets (from transport to the oil and gas sector), as well as new growth opportunities (plant-based foods, sustainable construction), are likely in 2021. 

4. An uneven recovery

GDP growth is forecast to bounce back in 2021, although most advanced economies will not return to 2019 GDP levels until at least 2022. There are risks, from vaccines to geopolitics; and the new lockdown measures will dampen the pace of recovery in many economies.

However, the profile will be positive. And I am increasingly persuaded by the potential for stronger, sustained productivity growth over the next several years.

But this growth will be uneven across and between economies: a rising economic tide will not lift all boats equally. Some sectors are structurally advantaged – notably the technology sector, where Covid has accelerated the digital transition – and these sectors will continue to out-perform in 2021. Managing the distributional consequences of this will be a major policy priority for governments in 2021.

There will also be unevenness across countries. Countries that can safely reopen quickly, and that can position themselves to benefit from the new drivers of growth will out-perform: this will require investments in skills and innovation, and supporting the transition into new growth sectors.

The distribution of outcomes across sectors and economies will widen; not everyone is positioned to have a stronger 2021. Small advanced economies will continue to out-perform, as they have through 2020.

5. Macro policy regime change.

The macro policy regime in place for the past few decades is changing, with negative policy rates, QE, and very high public debt levels. In 2021, many of these changed norms will become institutionalised: new fiscal policy guidelines, new coordination models between central banks and finance ministries, and so on.

Much of this new orthodoxy is appropriate given the severity of the Covid shock. The economic recovery process through 2021 will require macro policy support: large fiscal deficits, low policy rates, central bank purchases of government debt. 

But there are side effects. Although these macro policy shifts have dampened economic volatility over the past decade, 2021 may mark the end of this phase.

For example, expect inflation to begin to pick up through 2021: loose monetary policy combined with ongoing fiscal stimulus in the context of a strengthening economy with new supply side frictions (e.g. on globalisation) will create inflationary pressures. And central banks will be more prepared to accept above target inflation.

These macro policy settings and outcomes, with accompanying volatility, will be a marked change from the regime that has prevailed from the 1990s.


After some false starts over the past decade, 2021 will be a year in which the impact of structural economic and political changes become clearer: from climate change and geopolitics, to new drivers of economic growth and a new social contract.

Covid-19 has acted as a catalyst, accelerating the adjustment to new economic, political, and geopolitical realities.  Buckle up for another landmark year.

Five specific predictions for 2021

With heavy caveats on the limitations of forecasting, I also offer an additional five specific predictions for 2021:

  • The HKD peg is gone by the end of 2021, as part of China’s efforts to push the US out of the region - and to reinforce the premature ending of ‘one country, two systems.’

  • ‘Brexit fever’ breaks in the UK, after a thin deal with the EU is struck this month. Boris Johnson exits as PM in the first half of the year, and the focus turns to negotiating a forward-looking set of arrangements for the UK/EU relationship in a new political context.

  • A freshly-pardoned President Trump (& family) continues to campaign through 2021 on claims of a stolen election, keeping alive the option of a Presidential run in 2024 to try to maintain a hold on the Republican Party.

  • Taiwan becomes a key flashpoint between the US & China, because of its growing technological and geopolitical significance. The US significantly steps up its commitment to Taiwan.

  • The euro hits 1.35 against the USD as a European recovery takes hold, and as loose macro policy continues in the US - coupled with concerns on US political risk.

Let me know what you expect to see in 2021.

*David Skilling is the founding director of Landfall Strategy Group. He advises governments, firms, and financial institutions in the Asia-Pacific, the Middle East, and Europe on the impact of global economic and politics, with a particular focus on small advanced economies. You can find more of David's work here.

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I expect to see the economic repercussions of the coronavirus fully unravel in 2021. You can't have a once-in-a-hundred-years pandemic that shuts down the world, and expect the housing market and grow even bigger. It's like if a person drinks / eats, and uses the food as energy while having to poop out the excess waste. Well these ban on evictions and mortgage deferrals were basically suppositories that stopped poop from coming out. And what happens if that person keeps eating while not being able to relieve himself? Well he gets bloated until he pops, and s#!t will truly hit the fan. It just didn't happen this year, but it will come out next year.


Houses are our economy because the increasing prices support spending above peoples regular income. If house prices decline then so does CPI and then RBNZ will unleash a new tsunami of liquidity to prop up asset prices.

I admire but do not share your optimism for several reasons, the loss of tourism income, the increasing amount /cost of debt especially Govt debt and the effect of any increased taxes to pay for it or increased unemployment. The effect of uncertainty will cause many to not make decisions on spending, those who have lost wealth through business collapse or loss of job will be deterred from starting new business if they still have sufficient capital so a new funding stream will be needed. Habits have changed during covid lockdowns and are unlikely to return to pre covid ones. Divisiveness is at such a level that cooperation between people in their own countries and between countries, especially China which is unlikely to be a amenable to fairer & better partner unless they suffer a major catastrophe like the 3 Gorges Dam breaching.

Cost of Government debt? Who does the Government owe this debt to?

Good comment. When the ratio of employed to unemployed falls below a certain level. The system breaks doesn't it? I also share your pessimism regarding tourism. Most people seam to forget that tourism is seasonal in this country. We are yet to be closed for a tourism "high season" as we closed down in late March at the end of the last high season. Think there is a lot of pain to be felt here.

Further I think we will sort of hit the wall in terms of montary stimulus as well. In that you won't be able to maintain employment levels by printing more money.
Best case scenario is open boarder with a good 2021/2022 tourism season. Worst case is mutation in Spike protein mid 2021 rendering current vaccines ineffective then we are screwed.

We are importing CV-19 cases into the country at the rate of 5 a day
GDP September quarter recovered all the losses of the June quarter loss plus some
Tourism is a zero sum game - what they spend here we spend there
We are doing alright without the tourism sector of 4 million international tourists a year
The proposed Tasman bubble has just been cancelled

Wow Greece's GDP is looking bad again. I haven't heard much about it, surely they must be defaulting on loans again?

Euro zone finally went mutual.

Their debt is now 201 per cent of GDP. Something has to happen.

CCP have played the Western World. Became the factory of the world (albeit on the back of a lack of human rights) and made developed countries rely on them (both for cheap goods and large markets). It will be interesting to see how the dual circulation strategy unravels itself and the effects on other developed economies.

The current situation is accelerating these trends and especially with the conflict and division across much of the Western world I think we will be in for an interesting 2021.

The world may be turning Chinese. Surveillance, Social Credit, indoctrination, Govt controlling every organisation, travel restrictions, intolerance of alternative world views, etc.


Just remember that resource-wise, there isn't enough planet left for China to get to US consumption-levels.

I wish some of these 'economists' were wider-taught.

My pick is global collapse a 100% certainty by 2030, 50% certainty by 2024, war inevitable either way.

Just read James Lovelock's latest, Novacene. Worthwhile read for a counter-vision;

... sharp dude , at 100 ! ... thanks for the link ... nice to have positive ideas of mankind's future .... makes a pleasant change around here : Merry Christmas .

looks like someones had his pills watching the Jetsons again in the rest home

Quote of tje week from ham n eggs

and MC to you to, Gummy!

He's 100 years old, not an energy physicist. Try this:

Read it carefully Kate. Track the graphs. Compare to my year-predictions. Reckon Lovelock is really comparable? I sense Hopium.

... there must be a facebook page where doomscrollers praise you to the heavens & beyond .... Malthus rocks ! .... ha ha haaaa ....

Slow day?

1798 ... 222 years ago Thomas Malthus produced his tome of pestilence , famine , collapse of humanity ... and he's been proven utterly wrong every year ... two centuries of abject failure of his doom laden prophecies .... and even yet , his devotees , his gloomsterising faithful keep fervently praying , burning the midnight candle ... 2021 .. year 223 ... he will be right : Yeah , right !

Well Gummy, it seems to me the populance pestilence is well landed already. The grim future Malthus predicted is here in New Zealand now.
As a low income 25 year old I was able to build a decent house and afford the mortgage. Futher back as a child I enjoyed the family bach (low income family again) 10 meters from the sand. And one hour out of Auckland.
Not a chance of that now for the young.

The grim future was not owning a Bach?

Yep Jimbo. It was a way of life NZers could have. And now, not so much. Oh. And houses, but who needs those. lol.

Dear slow-day last-time out Election-night GBH,
Let me explain that scientific paper I linked upthread (and which you have yet to open).

We started with a full battery, in Earth terms. We have been flattening that battery ever since, at exponentially -increasing rates. Claiming the fact that it isn't fully flat yet, by way of disproving the discharge-indicating ammeter, is to diverge from the truth. Malthus pointed out the problem, and was 100% correct. All we have done since, is hoe ever-faster into the stock, and irrupt ourselves.

For other readers here, please bother to read the linked paper, note the graphs, and compare to the bumble I'm replying to. Draw your own conclusions using logic and fact as reference-points, rather than fear-generated optimism. We are indeed facing a predicament of unprecedented proportions, but hiding from it ain't going to help. And some of us have some - not all, there may not be an 'all' - of the answers. Time we put them in place.

We are tracking for his predictions to pan out, just not as quickly as he thought. The reason for that is, we keep coming up with what we think are solutions, however, all the while the environment continues to be degraded, we think we can just continue to bugger it "just a little bit more" somehow or other blind to the cumulative effects. It would appear that with our ability to deny to ourselves what we are doing that we won't really see what is in front of our eyes, until we can't see anything else for it.
You only have to consider the damage we have done to the oceans as a f'rinstance.
We might think we are pretty comfortable and sitting pretty right now, but only a fool would think nature can keep us in this manner we have become accustomed to, forever. It cannot.


I have waited a long time to see you make a prediction based on your highly pessimistic outlook and now you have. As my maths teacher would write on papers, show your workings. I would like to see just how you arrive at a 50% chance of a global collapse by 2024.

Of course, that is not impossible, but I believe, highly unlikely. Who would be fighting this war and over what issue? There is plenty to worry about including the increasing effects on humanity of climate change, but your outright pessimism is simply unhelpful. For Xmas, I suggest you read Steven Pinker's Enlightenment Now. it might cheer you up.

The war has already started but we aren't at the hot stage yet. Food security, resource security and territorial security being the what and the who will be all allies split between China and the US. 2024 is a bold prediction but it does look inevitable.

It's nothing to do with emotion, or even direction of same.

Have a read of that Paper. Which you haven't, or you wouldn't have asked.
Then this:
And this:
then remember that the World3 Standard Run, after 50 years, is still tracking truer than any other:

The only concession I'll grant you, is the fact that debt can be issued indefinitely. So our tracking-system is faulty from it's very basis. But if mass disbelief sets in, collapse would be very fast. Otherwise, wars over 'what's left of the planet', and not too far away because there isn't much (as the graphs on that first Paper clearly show) time left for everyone to keep on keeping on.

Have a great break; I just sailed to the Antipodes and back dropping researchers off; the albatross counts are plummeting. Cause? Homo Sapiens sweeping protein from the oceans. Wait until that appetite has to revert to land-based food....

China did not make the West rely on them, Capitalism did.

A nice, thoughtful piece.
I think 2021 will be relatively uneventful. And I hope it is.

I'm curious to see how effective the Covid-19 vaccines are , when the rubber hits the road , and they get into mainstream use ... 2021 ought to be a cracker ... can't wait !

A freshly-pardoned President Trump (& family) continues to campaign through 2021 on claims of a stolen election, keeping alive the option of a Presidential run in 2024 to try to maintain a hold on the Republican Party.

What - Trump Corporation debt and Trump tax pardons? Doubt it. I think it more likely the family decide to flee overseas to a country without an extradition treaty with the US;

Yeah I recon it will be open season on Trump as soon as he leaves the white house. 2021 when Trump gets done for tax evasion and is facing jail time. Kill two birds with one stone, jail him and he cannot run in 2024.

Trump's health would see him unable to run again in 2024, I even have doubts he will survive till then, tbh

Mental health? When you look back at interviews of him 30 years ago he seemed quite normal (in a rich wanker kind of way), I’m sure he has lost the plot big time since then and is getting worse by the day.

Not even mental health, he is not exactly a beacon of physical health, either

That would feed the conspiracy nutjobs more than if Trump were left free to roam the US and perpetuate his own conspiracy theories. Imagine it now - "Democrats finish the job they started in 2016 by jailing Trump." There's no win either way I think.

2021. The economy will get better and the people will get poorer. Go figure.

Not the ones that own a house.

Only on paper. And assuming 'own' means 'outright'.

What they really have is a piece of aging infrastructure which will require more maintenance with time, which requires (almost certainly) an external energy input and if they trace the build energy, the supplying energy and the servicing energy, they can trace them all to FF.

And their 'wealth' is reckoned in keystroke-issued debt, pegged to nothing.

That’s one hell of a pick for 2021 pdk!


Not very often I agree with you PDK, but I also think the world will be at war sometime in the next 20 years. It will start with China but I think Russia will use this to try Europe on. Putin still seethes over Reagan squashing the life out of the USSR back in the eighties!

Some sort of commercial reality should have happen but we continue to double down on printed cash and the RE bubble.The govt subsidy and printing train delayed anything really hitting the fan untill after the election. If the Govt continues to rinse and repeat then who knows.

2021....will global banking interests let a reset occur or will hyperinflation cut loose in a big way driven by debt fueled asset prices?