2021 will not be the year of the dollar rebound

2021 will not be the year of the rebound of the dollar for the year ahead, China is one of the few economies in the world that will show positive growth. With gross domestic product (GDP) growth estimated at 2.2 percent for 2020 by Credit Suisse, the Middle Kingdom stands out from most economies in the developed world. In 2021, the world’s second-largest economy is expected to once again spearhead global growth, with GDP growth of 7.1%.

Overall, the world economy is expected to grow by 4.1% next year, following an estimated contraction of 3.7% for the year ahead. Admittedly, the economies of the eurozone (+4.6% in 2021) and the United States (4.2%) are also expected to post a growth rate above their long-term potential, but after a sharp contraction in their GDP: -7.6% for the eurozone and -3.6% for the United States.

In comparison, the Swiss economy is expected to fare better than its neighbors this year (-4%), but it will also show a more moderate rebound next year expected at 3.5% in 2021 by the major bank, which published the Credit Suisse Investment Outlook 2021 on Tuesday. “The crisis of COVID-19 has contributed to accelerating many ‘supertrees’”.

Given the still very low inflation expected next year – both in the United States (2%) and in the eurozone (1%) – interest rates will rise only slightly across the Atlantic, while they will often remain negative in Europe. For government bonds, bond yields on 10-year Treasury bonds are expected to rise only slightly to 1.3% by the end of 2021, while they will remain negative at -0.3% in both Switzerland and Germany at the end of next year, Credit Suisse predicts.

the world economy is expected to grow by 4.1% next year


The low-interest-rate environment will benefit the shares, the bank anticipates. Thus, despite the fastest rebound in the history of the equity markets this spring, which managed to recoup their entire losses (-34%) after only three months, the upside potential for equities has not been exhausted. In the view of Michael Strobaek, Global Head of Investments at Credit Suisse, the stimulus measures, coupled with the expected economic recovery, will support financial assets, especially equities. Specifically, the bank expects a total return of 7.1% for Swiss equities, 7.4% for US equities, 8.4% for UK equities, and even 8.9% for emerging markets next year.

Among the developed countries, Germany and Hong Kong are Credit Suisse’s preferred markets, while Japan is the least favored. By sector, Nanette Hechler-Fayd’herbe, Head of Global Research at Credit Suisse, believes that the VIDOC-19 crisis has helped accelerate many “supertrees,” ranging from technology to climate change to digitization to infrastructure. In technology, the strong growth of e-commerce represents a permanent change, not just a temporary one. Infrastructure will receive substantial support from the fiscal stimulus packages put in place in the wake of the pandemic.

These programs will also support investments towards a carbon-free economic growth model.


With regard to the bond markets, Credit Suisse distinguishes between benchmark government bonds, which will offer poor performance given the low-interest rates, and other segments, such as investment-grade credit, which will offer a favorable risk/return profile. Among high-yield bonds, the bank favors higher-quality segments.

“The dollar does not offer sufficient economic compensation against the risks associated with it, in particular, those related to the budget deficit”.


On the foreign exchange markets, the recovery expected next year will not benefit the dollar. Credit Suisse even expects the greenback to resume its downward trend, as the US currency has now lost its favorable interest rate spread against other currencies. As a result, the greenback will depreciate against the European currency to reach $1.25 per euro by the end of 2021 (1.187 Tuesday).

The dollar does not offer sufficient economic compensation against the risks associated with it

Likewise, its status as a reserve currency is no longer as relevant as it used to be,” Nanette Hechler-Fayd’herbe analyses. By the end of 2021, both the Chinese yuan (6.32 yuan per dollar) and the Japanese yen (100 yen per dollar) are expected to appreciate against the greenback. In Switzerland, the Swiss franc, which had benefited from its value status at the height of the crisis, is expected to depreciate again slightly to 1.10 Swiss francs per euro by the end of 2021.


On the commodity side, will the economic recovery weaken the appeal of gold, one of the asset classes that have grown the most this year? Credit Suisse does not think so, and even expects the precious metal to appreciate further to 2,200 dollars per ounce, compared to just over 1,800 dollars per ounce at present

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