BGL BNP Paribas chief economist Yves Nosbusch (shown in this archive image) says he's “sanguine about the outlook for 2021" (Photo : Sébastien Goossens / archives)

BGL BNP Paribas chief economist Yves Nosbusch (shown in this archive image) says he's “sanguine about the outlook for 2021" (Photo : Sébastien Goossens / archives)

A four-answer option poll carried out during the webinar asked the approximately 700 participants-- based in Europe, the US, Asia and beyond--what trend would dominate business in 2021. Covid-19 and digitalisation were selected as the main trends (at roughly 33% each), with sustainable finance just under (30%). Brexit, on the other hand, was selected by only 4% of the participants. 

For panelist Keith O’Donnell, Atoz Tax Advisers Luxembourg managing partner, this doesn’t come as much of a surprise. “Personally, as a European, the rule of law question in the long term is more important than Brexit,” he said. 

BGL BNP Paribas chief economist Yves Nosbusch added that he found it “encouraging that sustainable finance is so high on the agenda”.

Both Nosbusch and O’Donnell see opportunities on the horizon when it comes to climate. O’Donnell questioned whether 2021 could be the year to finally “get something done on carbon taxes”, while Nosbusch stated that he also hoped for a global carbon trading mechanism, adding: “Empirically, people respond well to tax incentives.”

Pent-up demand & sector variety

Nosbusch says he’s “sanguine about the outlook for 2021 and beyond” for a number of reasons.

“The effects of covid will largely disappear with the introduction of mass vaccination,” he explained. “There’s a lot of pent-up demand, [and] savings to spend when there are less severe restrictions.”

In terms of fiscal and monetary responses, Nosbusch said that government spending by Luxembourg, including subsidies for small businesses and partial unemployment measures, as well as the European Central Bank’s monetary policy and massive liquidity injections have been “extremely important”. 

Not only have lessons been learned by governments as the crisis has played out, but the recession is less severe that was originally feared. 

A second poll gave the audience three options as to what Eurozone economic growth rates will be in 2021, with the majority (around 59%) answering 0-2%, while 22% and 18% said more than 2% or negative, respectively. 

As Nosbusch explained, the Eurozone saw sharp contraction in Q2, rebound in Q3, another (less severe) contraction in Q4 and estimated that the contraction in Luxembourg will “probably be around 4% this year”--also with a milder rebound next year--"mainly due to the financial sector’s large weight in the economy [which can largely] function through teleworking solutions.”

While he estimates that Luxembourg unemployment will peak to maximum 7%--less than the 9.5% in the Eurozone--the grand duchy actually has enjoyed net job creation of 2% growth, or around 9,000 jobs. “This may seem paradoxical, but the reason of course is jobs created in specific sectors, whereas other sectors were forced into layoffs, and the skills are not easily transferred in some cases.”

O’Donnell added that he had seen a variety even within a particular sector amongst his network. In the hotel industry for example, “some of our clients, their only priority was survival. Their cash flows were savaged,” while others “had access to financing and were saying, this is a great opportunity to buy into assets that are finally at an affordable price.” 

The tech sector, on the other hand, was at another extreme. “Some of our clients were able to raise money very effectively because their revenues suddenly started to grow if they were in some way connected to the solution to some of the covid issues,” O’Donnell explained.

“At the other end, because we have VC funds, they were saying, we have to take a very Darwinian view to this, and we split our clients or investments into different buckets”, thereby either investing heavily in successes, cutting funding on those unlikely to survive.