The arrival of spring has brought further upgrades to our forecasts for the global economy, which we soon
think will see a “goldilocks” scenario of strong growth and contained inflation pressures as we recover
from the pandemic. In turn, this will see central banks keep their policy rates on hold over the next
couple of years and prove supportive for financial markets. Our global growth outlook of nearly 7%
this year is above-consensus, but we think this is merited given the considerable tailwinds supporting
this. We expect the US and China to again be the locomotives of global growth, with the former growing at
a rate c.+7.5% (Q4/Q4) and the latter at +10% in 2021. The continued vaccine rollout should put much of
the developed world in a strong position by the summer months, with vaccination rates expected to hit
60-70% by the early summer in the US and Europe. Second, as normal life returns, the build-up in
household savings and pent-up demand from the pandemic will provide further support. And third, fiscal
and monetary policies are continuing to work together, and are being used on a larger scale than after
the global financial crisis. For the Euro Area, we expect comparatively slower growth of 4.6% in
2021, thanks to the less extravagant fiscal stimulus packages than those passed by the US and a lag in
vaccinations. On the other hand we expect lower inflation in the EU and lower debt accumulation, putting
it in a good position in the years to come. The prospects of a rebound have already lifted risk
assets this year, and we see this having further to run, with a year-end S&P 500 target of 4100. We also
see the moves higher for yields continuing, with those on 10yr US Treasuries ending the year around
2.25%, whilst the dollar should move lower as the Fed holds the line on rate increases. One of the
biggest risk to our views would be a return of stronger-than-expected inflation in 2022. Our central
expectation is that the acceleration over the summer will be temporary, but risks have moved to the
upside and market-based expectations now stand at multi-year highs. This is one of the few clouds that
could knock our “goldilocks” scenario off course.
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