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.
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.