COVID legacy will be higher debt, not weaker growth

We do not expect the pandemic to do permanent damage to global economic growth as vaccines allow activity to resume. There will be sustained behavioural changes, but these need not be negative. Note, for example, that technology use has accelerated in many advanced economies, supporting our view that future productivity growth will be stronger than most expect. Another key legacy will be higher public debt, but we expect this to be managed through sustained low interest rates and by central banks tolerating a significant rise in inflation. The increased pushback against globalisation has strengthened our conviction that EM catch-up will slow. Meanwhile, the green energy intensive fiscal stimulus around the world has brought forward the likely timing of peak oil demand, which will weigh on oil prices and see some EMs struggling to diversify.
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More from The Long Run

Long Run Returns Monitor

Long Run Returns Monitor (Nov.)

Our monthly Long Run Returns Monitor provides our updated long-term projected returns for major asset classes, as well as a summary of the macroeconomic forecasts which underpin them. All projections in this publication are as of 23rd November 2021. A more detailed explanation of our views can be found in our annual Long Run Economic Outlook and Long Run Asset Allocation Outlook.

25 November 2021

Long Run Update

COP26 a small step forward but much left to do

COP26 has progressed efforts to fight climate change, but there is still a significant gap between pledges and actual policies. Unless action ramps up this decade, countries may face a choice between accepting the costs of greater global warming or a rapid, and potentially disorderly, transition to a greener economy.

16 November 2021

Long Run Update

COP26 unlikely to alter economic outlook

The UN’s annual climate change conference, COP26, has the potential to be an important milestone but it is just one step along the path required to limit global warming. Accordingly, it will not on its own stop climate change from clouding the long-run economic outlook for many emerging markets in particular.

2 November 2021

More from Global Economics Team

Global Inflation Watch

Inflation picture more nuanced than headlines suggest

While rising commodity prices and supply shortages are boosting inflation everywhere for now, the outlook is mixed. The boost from energy prices will fade soon as the anniversary of last year’s slump in the oil price passes. And while shortages of inputs including semiconductors, metals and lumber may persist for a bit longer, they should ease in time as supply recovers and consumption patterns normalise. However, some economies face greater risks of sustained inflation than others. Among the advanced economies, spare capacity is likely to be eliminated soonest in the US and signs of widespread labour market tightness are most pronounced there and in Australia. Among the EMs, strong recoveries in China and East Asia are doing little to generate prices pressures but the risks are greater in Central Europe.

21 June 2021

Global Economics Chart Book

Recoveries regaining pace after slow start to the year

Global GDP growth slowed sharply in Q1 as most parts of the world grappled with renewed waves of coronavirus. The US and Korea were among the few exceptions where recoveries accelerated. But with global infection numbers now falling, activity seems to be gaining momentum again. The Global Composite PMI rose to its highest level since April 2006 in May. What’s more, our high frequency COVID Mobility Trackers suggest that activity has risen sharply, particularly in Europe, as restrictions have eased. Other than in particular sectors such as motor vehicle production, there is little evidence so far that recent supply shortages are holding back output. But there are growing signs of inflationary pressure around the world, most notably in the US. Fears of higher inflation should prompt numerous central banks in emerging economies – especially in Central & Eastern Europe – to shift towards tighter monetary policy in the coming quarters. But central banks in major DMs will look through higher inflation this year and next.

11 June 2021

Global Economics Chart Book

Near-term inflation pressures mount

Near-term inflationary pressures appear to be building. Some of this reflects factors that are likely to be only temporary, such as the “reopening inflation” associated with the easing of virus-related restrictions. We also think the broad-based rally in commodity prices will go into reverse later this year. But there is a risk that shortages of commodities could constrain the production of goods and services, leading to a more broad-based rise in inflation. So far, there is most evidence of a rise in underlying price pressures in the US, which is consistent with our forecast of a prolonged upward shift in core inflation there.

17 May 2021
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