Key Forecast Trends
- Global growth is set to accelerate strongly once advanced economies lift COVID-19 restrictions, spurred on by highly expansionary policies and a partial drawdown of forced savings. But there are key differences between countries.
- Fresh stimulus should push the level of US output above the pre-crisis trend in the second half of 2021. Depending on the extent of any supply-side scarring from COVID-19, this could put upward pressure on inflation.
- The outlook for Europe is more muted, partly due to measures to contain COVID-19 and slow vaccine rollout. The level of output is unlikely to regain pre-pandemic levels until the middle of 2022.
- In China, output is back at pre-COVID-19 levels and the priority now is economic and social stability. We expect China to exert a stabilizing influence on global growth.
- Base effects should push headline inflation higher in coming months. Thereafter, the immediate path forward will depend on the complex interplay between the pace of the demand recovery and supply-side scarring. Upside risks are highest in the US.
- Strong growth and rising inflation point to higher bond yields. But central bank policy is still focused on suppressing yields and driving inflation higher. We expect yields to remain largely anchored in Europe and Japan, with some upside likely in the US.
- The return of US exceptionalism points to a stronger dollar against the euro and the yen, but strong global growth should support growth-sensitive currencies.