ETMarkets Global Summit on Thursday.
“I think it (tapering) will be a bigger problem in 2022… right now, central banks are going to remain just as friendly as they are now even with an initial vigorous economic recovery,” O’Neill said.
Analysts and market watchers have turned cautious with every sign of economic rebound that normalisation of interest rates by global central banks and withdrawal of stimulus will start now, and that could rock the boat in the euphoric financial markets.
O’Neill says investors will need to be very alert and watch the underlying messaging by the Fed for any signs of a future shift on its easy monetary policy stance. The US Fed has stated that it does not see interest rates rising until at least 2023, and hinted that it is comfortable with rising inflation for some time.
O’Neill expects the countries that are most successful in rolling out the Covid-19 vaccines to see the fastest economic recovery. In India, the government kicked off the first phase of the vaccination drive this past Monday.
O’Neill does not expect the Indian economy to see a “vigorous” recovery this year, but foresees a “big recovery” in 2022. The former Treasury Secretary of the UK expects the global growth recovery to be led by the US and China for the time being.
He said the current economic background has set the stage for a strong outperformance by emerging markets going forward. “This is a textbook, perfect support environment for the so-called emerging markets. It is so scarily positive, it makes me think that something may go wrong in some place since it is never that straightforward,” O’Neill said.