“We maintain a constructive view on the economy and expect the growth recovery to gain strength from 2Q21,” the Insight: 2021 Global Macro Outlook report said. The report said that the growth would be accompanied with inflation under control.
“Inflation will remain marginally above the 4%Y target but external stability risks stay contained and policy rates only see a first lift-off at year-end from an extraordinarily accommodative stance,” the report said.
The report also said that China’s GDP would grow at 9% in 2021 before it comes down to 5.4% in 5.4% while the US economy would grow at 5.4% in 2021.
Domestic demand-oriented economies like India and Brazil, a number of indicators have recently exceeded pre-COVID-19 levels and are registering positive year-on-year growth. This strong momentum should continue into 2021, with EM growth rising to 7.4%, higher than the consensus expectation of 6.3% the report added.
Global economy too would see a recovery across geographies and sectors from March-April next year. “Driving this synchronous recovery will be a more expansive reopening of economies worldwide and the extraordinary monetary and fiscal support now in place. Global GDP, already at pre-COVID-19 levels (based on seasonally adjusted GDP levels), continues to accelerate and is on track to resume its pre-COVID-19 trajectory by 2Q21 (April),” the report said.
The report also cautioned of some risks along the path to recovery. The near-term risks hinge on virus and vaccine developments. A sharper rise in hospitalisations in the US or Europe could prompt policy-makers to adopt stricter lockdown measures than our base case, and approval of vaccines for emergency use could come later than January 2021. Looking a bit further out, we see scope for upside inflation risks from 2H21, which could create a disruptive shift in expectations on Fed policy, the report said.