- The most recent outlook highlights a number of factors that may contribute to a challenging investment environment ahead.
- Three key takeaways from our cyclical outlook and what can we expect looking forward for 2021.
- Fed tapering of the bond purchases is on the horizon probably starting sometime early next year. This combination of fiscal policy taking the foot somewhat off the accelerator and the Fed starting to taper could lead to some additional volatility.
Three key themes will likely drive a global economic recovery this year - and into the next: a strong rebound in economic activity, a temporary rise in inflation, and continued fiscal and monetary support.
Tina Adatia: The most recent outlook highlights a number of factors that may contribute to a challenging investment environment ahead. What are the key themes in this year's outlook, and what can we expect looking forward for 2021?
Joachim Fels: Well, Tina, let me just highlight the three key takeaways on the macro front from our cyclical forum.
First of all, we see a very strong rebound in economic activity this year for the reasons that we discussed earlier, vaccines, fiscal policy, monetary policy support. Last year, we had to shut down important sectors of the economy. This year is the year of reopening. So that's a key driver for the outlook that we have. However, it's going to be a multi-speed recovery if you look around the globe.
So China is clearly in the lead with a growth in excess of 8%. We think this year, the U.S. won't be far behind. We're forecasting more than 7% GDP growth. You really have to go back to 1984 to find a year with similarly strong growth. So almost four decades back. Europe, also Japan lagging behind somewhat because the vaccinations are not progressing at the same pace as in the US. Also there's significant but less fiscal support than we are seeing in the US, but even in Europe and Japan, we see clearly above-trend growth this year, driven by the reopening that will also happen there later this year. And then finally, many emerging market countries are lagging and will be lagging behind.
Second, inflation. We are looking for a spike, but not a spiral. So we think there will be a temporary surge in inflation over the next few months, but we also think that we will see mean reversion in inflation rates later this year. So overall, we think beyond the near term, spike inflation will remain subdued. Having said that, we think that in the next few months, investors may be spooked a little bit by the run-up in inflation. That's why we're talking about the risk of an inflation head fake in financial markets that could lead to some volatility.
And then the third theme coming out of the forum is one of ongoing and continued massive fiscal and monetary support this year. But we think there are some question marks over next year, because fiscal policy may become somewhat less supportive as the economy recovers.
Also, Fed tapering of the bond purchases is on the horizon probably starting sometime early next year. And again, this combination of fiscal policy taking the foot somewhat off the accelerator and the Fed starting to taper could lead to some additional volatility. And this is something that could start to come on investors' radar screen over the next, say, three to six months.
Please note that this video contains the opinions of the manager as of the date recorded, and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.
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