- In our Week Ahead podcast we are discussing the main themes that will drive Global markets.
- Our updated calendar identifies the top events that should be on your radar this week.
- We also provide an outlook overview region by region for the rest of the year.
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Our view in a nutshell
Japan
- We expect growth to accelerate on vaccination progress, but another pandemic surge suggests flat short-run economic activity.
- With the prolonged pandemic pushing down inflation, suspension of the GoToTravel campaign will technically increase the rate.
- We do not expect the Suga cabinet to make any significant change in economic policy and in BOJ’s monetary policy.
- The risk is renewed yen appreciation, caused by deepening US-China tensions and further risk averse moves in markets.
Asia
- Asia’s growth cycle may be bumpy, but it’s headed higher, with a greater divergence between Northeast and Southeast Asia/India.
- Northeast Asia benefits from chip shortages amid the tech super cycle, with better pandemic resilience supporting consumption.
- In Southeast Asia/India, rising infection cases and tighter government restrictions suggest softer near-term domestic demand.
- We expect China, Singapore and Taiwan to be the growth leaders in the region, while Thailand and the Philippines could lag.
- Higher inflation is likely on base effects, the end of government subsidies, higher commodity prices and a narrowing output gap.
- Policy rates will likely be left unchanged this year, but hikes are likely in China, India, Indonesia, Malaysia and Philippines next year
- China: We expect Beijing to stick to its “no sharp shift” commitment when normalizing its policies, despite rising inflation.
- Korea: Strong exports and consumption should buttress the growth upcycle, but the BOK is likely to leave policy rates unchanged.
- India: The second wave should slow near-term growth, but the medium-term upcycle and policy normalization from Q4 2021 are intact.
- Indonesia: Rising inflation amid debt monetization and current account deficits could test monetary policy credibility.
- Australia: The economic recovery continues; central bank guidance should turn less dovish in early July.
United States
- Democratic control in Washington means more fiscal stimulus, but partisanship and narrow majorities will likely constrain policy.
- The pandemic’s impact on activity has started to wane as vaccinations and economic re-opening accelerate.
- We expect constant Fed asset purchases through 2021 before a gradual taper in 2022.
- The Fed will likely stay at the ELB at least through Q2 2023 with inflation remaining the key determinant to liftoff.
- The unemployment rate will decline more gradually from here as the pace of recovery slows relative to the post-lockdown rebound.
- Economic reopening and supply chain disruptions will likely push up near-term inflation, but we expect deceleration in 2022.
- Notable risks include new SARS-CoV-2 variants along with both upside and downside risk around fiscal policy.
Europe
- With lockdowns still in place we see euro area GDP falling at a similar pace to Q4 in Q1, then recovering from Q2.
- While underlying inflation remains low, base effects and policy changes should raise headline inflation sharply this year.
- With GDP rebounding and inflation rising in the short term, we expect the ECB to keep policy on hold this year.
- Recent UK lockdowns had less of an effect on output and are slowly being lifted. A full recovery takes until beyond 2022.
- Following a fall in GDP in Q1, we expect pent-up demand and policy stimulus to be supportive as restrictions are eased.
- After another £150bn of QE we think the BoE is done with easing. We do not expect negative rates, but risks remain.
For more information read our weekly report here
Contributor
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Rob Subbaraman
Head of Global Macro Research and Co-head of Global Markets Research
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Lewis Alexander
Chief US Economist
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George Buckley
Chief UK & Euro Area Economist
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Ting Lu
Chief China Economist
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Takashi Miwa
Chief Japan Economist
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Sonal Varma
Chief Economist, India and Asia ex-Japan