Short Term Outlook
Global Economy
Continued vaccine rollouts against a backdrop of broadly generous government policy support should see advanced economies and several emerging economies open up their economies in the second half of the year, although China’s economy should slow from its above-trend level and poorer emerging markets will continue to grapple with virus outbreaks and slow vaccine rollouts for a while to come. Inflation will stay elevated in the coming months. But once some arithmetic effects drop out, commodity prices come off the boil, and economies open up, underlying inflation pressures will be under control in most cases. Several emerging economies are readying themselves for policy tightening. But it will generally be more limited than investors anticipate, and where recoveries remain weak, policy will remain supportive. Meanwhile, major central banks in advanced economies will refrain from interest rate hikes for the time being, with the Fed’s first hike anticipated to come in late 2023.
Global Markets, FX Markets & Asset Allocation
We continue to forecast that a strong recovery in the global economy and ongoing policy support will drive further increases in developed markets and emerging market equities, while a continued rotation towards the sectors and factors that have been hit hardest by the pandemic alongside with companies which have strong earnings growth which are expected to continue, i.e., Amazon, Mastercard, NVIDIA, etc. Meanwhile, given our view that the yields of 10-year government bonds in most developed markets will rise from here, we suspect that the gains in equities will be lower than we have seen the past 10 years. Furthermore, we expect the US dollar to strengthen as the economy in the US outperforms and government bond yields there rise faster than elsewhere.
Medium Term Outlook
Global GDP is forecasted to be 6.3% in 2021, lowering to 4.7% and 3.6% in 2022 and 2023 respectively. Macroeconomics involves understanding many various factors. In an upcoming article we will touch on a few key areas relating to the following:
- The last 40 years from a macroeconomic perspective. The trillion-dollar question is it repeatable the next 10 years, 5 years, 1 year?
- Where are we today in macroeconomic cycles?
- Are we approaching secular stagnation, a secular decline, or continued secular growth?
- The law of cosmic duality
