Higher inflation to persist and real rates stay negative

Recent developments have supported our view that the pandemic will not do much permanent damage to the level of GDP in most countries, especially developed markets. Nonetheless, it will accelerate some of the structural trends that were already set to weaken the long-term growth prospects of emerging markets, including China. Accordingly, we expect global GDP growth to ease from the recent trend of around 3.5% to 2.5% by 2050 and we do not see China overtaking the US as the world’s largest economy. Meanwhile, even once the temporary factors pushing up inflation in developed markets wane, we think that it will settle at a higher rate over the next few decades than in the previous one. While real short-term rates will rise in the coming years, we expect them to stay below zero in major DMs throughout this decade at least.