We maintain our GDP growth forecasts at 6.5% for 2021 and 3.5% for 2022. However, we have raised our inflation forecast for 2021 to 2.9% from 2.5% previously. The reasons for the revision are the price pressures that will likely come from the combination of supply shortages (due to supply chain disruptions) and demand strengthening (due to stimulus and re-opening), plus April's high CPI number. We continue to see the inflation jump as transitory, but upside interest rate tail risk continues to rise.
The key takeaways are as follows:
April data shows an improving recovery in most sectors.
Rising demand and supply disruptions are raising input prices, weakening the construction and auto sectors.
Rising interest rate risk and high asset valuations suggest rising tail risk in the financial sector.