Key points

  • The virus is fading from a year-end resurgence in most areas of the globe. Vaccine rollout is also underway. Economies will ease COVID-related restrictions at different paces depending on circumstances. This will govern the speed of economic rebound.
  • Additionally, the US appears set to unleash a powerful fiscal stimulus. This will boost economic activity this year and next, we forecast to 6.2% and 4.5%. It also looks set to close the US output gap by the end of this year, bringing closer a sustainable rise in inflation.
  • Financial markets are reacting to this shifting outlook: government bond yields are rising in the US, but also elsewhere. This is leading to a pause in risk markets, although we remain positive in outlook at this stage.
  • Unchecked, the rise in yields may be a problem in areas where growth is not recovering as quickly. Notably the Euro area, but also in some emerging markets.

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