Schroders Economic 'Crystal Ball' 2021 webinar: Light at the end of the tunnel for world economy
Schroders Economic 'Crystal Ball' 2021 webinar: Light at the end of the tunnel for world economy

08/12/2020

08/12/2020

News that a Covid-19 vaccine is on its way has provided a boost to the outlook for the world economy and spurred a significant rally in equity markets, Schroders Economists told journalists during the 'Crystal Ball' 2021 webinar.

Keith Wade, Schroders' Chief Economist, commented:

'Our forecasts factor in a difficult winter before the vaccine brings a stronger recovery in activity in the second half of 2021. We see the recovery extending into 2022 as fiscal and monetary policy remain loose whilst activity normalises.

'Another factor behind our more cautious view in the near term has been the failure of Congress to agree a deal on fiscal stimulus. We had expected a package would now be supporting the economy with enhanced unemployment benefits and help for state and local governments.

'Meanwhile, the Federal Reserve, European Central Bank, Bank of Japan, and Bank of England keep rates unchanged through the forecast period.

'We expect inflation to be low and stable and central bankers remain wary of the threat of deflation. As we have argued before, the Fed's new framework means that we will need to see a period of 2%-plus inflation to hit the average inflation target. That means zero interest rates and continued quantitative easing.'

Azad Zangana, Schroders' Senior European Economist, commented:

'In Europe, we've seen the return of national and regional restrictions in the effort to stop the spread of the coronavirus. These are likely to cause most member states to experience a further fall in GDP in the final quarter of the year.

'The forecast for the UK is not too dissimilar to the rest of Europe, but it ends 2020 on a weaker footing (-11.3% GDP growth) due to the initial length of lockdowns earlier in the year. It too is likely to double dip given restrictions over November, and may yet still face some restrictions in early 2021.'

Piya Sachdeva, Schroders' Economist, commented:

'The consumer drove the early stage of the Japanese economic recovery. However, the recent sideways moves in retail sales suggests that short-term pent-up demand has now been largely exhausted.

'Looking ahead, the pick-up in global trade should continue to support the Japanese recovery in the fourth quarter. This should also help lift capital expenditure, which continued to fall in the third quarter despite the wider recovery. The pace of growth should then slow further into the first half of next year.

'On the whole, both 2021 and 2022 should prove strong years for Japan as strong exports to a recovering world economy lift overall growth.'

David Rees, Schroders' Senior Emerging Markets Economist, commented:

'We have revised up our forecasts for emerging market (EM) GDP growth for both this year and next. Meanwhile we expect a solid - albeit slower - expansion in 2022. In the near term, our stronger forecast for 2020 is driven by upward revisions to our expectations for many major EM economies. These have contracted by less than we had initially feared despite terrible outbreaks of Covid-19.

'For example, while new infection rates remain elevated in Brazil and India, the relaxation of restrictions on activity earlier this year released a wave of pent-up demand. This drove a strong rebound during the third quarter.

'Meanwhile, China's economy has outperformed the rest of the world during the course of 2020 as the authorities handled the outbreak of Covid-19 relatively well. They were also able to deliver an effective economic support package. The lagged effects of these stimulus measures look set to drive a further recovery in growth into the first half of next year.'

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Schroders plc published this content on 08 December 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 December 2020 11:04:03 UTC