IN FOCUS6-8 min read

Economic and Strategy Viewpoint - June 2021

We've substantially upgraded our growth forecasts and believe the Federal Reserve will be forced off the sidelines to act.

2021/06/01
open-for-business
Read full reportEconomic and Strategy Viewpoint - June 2021
17 pages447 KB

Authors

Keith Wade
Chief Economist & Strategist
Azad Zangana
Senior European Economist and Strategist
David Rees
Senior Emerging Markets Economist
Piya Sachdeva
Economist
  • The success of the vaccine roll out, official policy support and the adaptability of many firms in operating with Covid-19 restrictions has led us to increase our forecast for global growth with significant upgrades to the US, UK and eurozone.
  • Inflation is also higher in the near term as a consequence of the rise in commodity prices and the impact of the re-opening of the service sector. We concur with the Federal Reserve (Fed) that this will be transitory, but looking further out see inflation building as the output gap closes and capacity tightens in 2022.
  • Such an outlook will force the Fed off the side-lines and we now expect the central bank to begin tapering asset purchases at its December meeting this year and to start raising rates in Q4 2022. The challenge for the Fed will be to communicate the pivot in policy without generating substantial market volatility.
  • Other economies are lagging behind the US, but not by much and policymakers can expect to come under similar scrutiny in 2022.
  • Growth in Europe receives a significant upgrade as the pace of vaccinations has been stepped up, improving the prospects for an earlier re-opening, and also the avoidance of further restrictions. Inflation has also been revised up, but remains low in comparison to the US, and therefore does not force the European Central Bank to change its policy path.
  • Emerging markets (EMs) will benefit from a stronger global economy. But the upgrades to our forecasts are not large and GDP growth may barely exceed the pace of expansion in developed markets next year. A period of above-target inflation in many EMs should subside as the impact of higher food and energy costs fades, negating the need for aggressive interest rate hikes by most central banks. Nonetheless, with the Fed set to turn more hawkish all of this points to a more challenging period for investors.

The full Viewpoint is available as a PDF below.

Read full reportEconomic and Strategy Viewpoint - June 2021
17 pages447 KB

Authors

Keith Wade
Chief Economist & Strategist
Azad Zangana
Senior European Economist and Strategist
David Rees
Senior Emerging Markets Economist
Piya Sachdeva
Economist

Topics

In Focus
Keith Wade
Azad Zangana
Global
US
Europe ex UK
Coronavirus
Economic views
Economics
2021

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