Economic and financial risk insights - 2021: a year of global recovery and the start of redistributive policies
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Risk landscape: What’s new?
Soft data in the near term, but watch out for base effects: The pandemic's resurgence will continue to challenge the US and European recoveries in the short term and we expect some relatively subdued economic growth prints as a result. Inflation readings will also remain soft until around March. However, base effects will then come into play, which will translate into notable increases in inflation that may well temporarily exceed 2% by around May. While there are few signs of self-sustained rises in inflation globally given the size of output gaps, we continue to believe that the medium-term risk of higher inflation has increased as a result of COVID-19.
We expect a year of global recovery in 2021, but also the start of redistributive policies. Global growth will be subdued at first, given the most serious wave of COVID-19 yet is under way, but should rebound in the second quarter of 2021.
Key Takeaways
- Global growth momentum will slow in the short term as the US and Europe are challenged by COVID-19 waves. China is set to continue to lead the recovery.
- Economic recovery will come in 2021, with temporary but notable inflation rises in H1.
- The recovery will be protracted and fragile as much of the structural damage to economies is already done.
- Elections and political events are key to watch for in 2021, including the Georgia Senate run-off in January.
- Risks to the outlook are balanced overall due to positive vaccine developments.
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