Perspectives edition 2021/04 (2021/03/31)
Clear & concise
- We are expecting a clear pick-up in economic activity during 2021 and 2022;
- The return-risk profile is shifting as a result of vaccination divergence;
- Although the spike in inflation will only prove to be a temporary phenomenon, risks are skewed to the upside;
- Longer-term yields are set to move moderately higher in spite of persistently loose monetary policy;
- The environment for higher-risk assets remains favourable despite rich valuations.
Video: An espresso with Jürgen Michels (April 2021)
The USA is once again showing relative strength vis-à-vis Europe: where EU member states are implementing the next set of lockdowns in a bid to keep the third wave of the pandemic in check, the US administration is already firming up the time scale fur further lockdown easing. This divergence can mainly be traced back to the different vaccination strategies evolved last year: where the Trump administration “thought big” on this front in the USA, the Europeans (for all their concerted efforts) appeared content with half measures. A similar picture emerges on the fiscal-policy side where the Biden administration has passed into law massive additional programmes this year whereas the German Constitutional Court is currently investigating legal challenges against the EU Recovery Fund. The upshot of this disconnect will be that the US economy gains traction during the first half of 2021 whereas its euro area counterpart will, at best, stagnate.
Despite the discrepancies separating the two sides of the Atlantic and despite the shift in the return-risk profile, we have left our GDP forecasts on hold. For the euro area, we are continuing to expect the economy to...
Perspectives Long View Edition 2021/03 (2021/03/18)
Back to normality in three phases
Once the pandemic is over, the economy will normalise in 3 phases. Though inflation is set to move higher, monetary policy will be tightened cautiously so as not to destabilise financial markets.
Clear & concise
- The Covid pandemic will leave its mark on economic activity in the coming years too;
- We see the economy going through three phases: a boom, a transitional phase, then the advent of a new but lower normal;
- Inflation is set to rise to a noticeable extent before subsequently stabilising again;
- Cautious monetary tightening, with the ECB only raising rates from 2024 onwards;
- With yields climbing only moderately, ”risky assets“ remain attractive despite volatility.
Over the course of the coming five years, the forecast horizon for our medium-term projections, we will finally overcome the Covid-19 pandemic. However, the outlook remains fraught with uncertainty, and economic developments are going to be decisively affected by the knock-on effects of the pandemic. Looking beyond the return to normal of social life, a major role is going to be played above all by fiscal and monetary-policy normalisation. Investment activity will be heavily shaped by the 3 Ds digitalisation, decarbonisation and deglobalisation. All this will exercise an influence not only on the cyclical trajectory but also on the trend in inflation, to which market actors can be counted on to devote particular attention.
We are going to witness various phases of normalisation
At the time of writing, progress on the vaccine rollout in Germany, as in the wider EU, is still very disappointing. Yet we ought to see improvements over the coming weeks, leading to large-scale immunisation in advanced economies by the autumn of this year. Lockdowns will be...