Global Economic Outlook

With Christian Keller, Head of Economics Research at Barclays Bank

Introduction

• There will be a global recovery, stimulated by the U.S.A., with expansion of around 6.4% y/y this year. Importantly, this represents a faster economic rebound than that seen following the 2008-09 recession.
• The unprecedented US fiscal stimulus and continued Chinese growth are supporting the lagging European and EM economies.
• Inflation should rise in the coming months due to higher oil prices, supply bottlenecks and strong demand- however, this will not be permanent.
• High money growth reflects large savings accumulated in deposits

Divergence in the Recovery

The Chinese recovery is already back to pre-pandemic standards but overall growth has been slowing.

The global growth trend is much lower than it used to be.

In the major economies: there was little change in inflation after the last global recession.

If interest rates tick upwards then governments, and the many companies that accumulated debt during 2020, will be under great pressure.

Interest rate outlook: market already prices early Fed hikes with no lift-off through to 2023.

The large US ‘twin deficit’ in the fiscal and current account could undermine confidence in the USD over time.

Questions

There has been a real shift in narrative which suggests we can spend/print/borrow money with less prudence than historical levels. However, we may experience the consequences of these decisions in the future.

The uneven global recovery has been caused by different responses to COVID. The U.S. is moving faster as they are not in lockdown but other wealthy nations, such as Japan, have only recently begun their vaccine rollout.

The economic rebound will not come from manufacturing as much of that has already recovered. It will instead come from fiscal responses and the services sector rebounding (travel is 10% of GDP).

Our thanks go to Christian Keller, of Barclays Bank, for hosting this event with the BSCC.

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