Text on screen: PIMCO
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Text on screen: Joachim Fels, Global Economic Advisor
Joachim Fels: It's indeed been a long climb out of recession over the last 6 months. We've seen some setbacks for the global economy in recent months, particularly in Europe.
Text on screen: TITLE – Cyclical Outlook BULLET POINTS – Global output and demand likely to rebound strongly in 2021; vaccine rollouts; continued policy support.
But overall, we think the outlook for this year, the growth outlook for this year is really very good. We are looking for the strongest global GDP growth in more than a decade. Two reasons for that. One, and most importantly, the vaccine rollout will allow us to reopen economies in the course of this year, so that bodes very well for growth, particularly in the second half of this year.
And secondly, monetary and fiscal policy is still very supportive. So all of that leads us to expect a very strong rebound in both demand and output in the course of this year.
Image: TITLE – Real GDP Level; a line chart showing years December 2017 to December 2021 on the x-axis and Index (4Q2019 = 100) on the y axis. Four lines represent the U.S. (dark blue), Euro Area (green), U.K. (maroon), and China (light blue).
Now, if we look at the global economy, starting with China, China has really been outperforming the rest of the world on the way up after its recession in the first quarter of last year. You can see this in the chart on this slide, the light blue line shows GDP levels in China on a quarterly basis, so China clearly leading. We're expecting something like 8% GDP growth this year.
Secondly, the US has also done quite well following the second quarter recession of last year, so that's the dark blue line in the chart. We could see close to 7% GDP growth in the US this year. We think that the pre-crisis level of economic activity will probably be reached around the middle of this year. And again, a fiscal package, another fiscal package, a large one from the new Biden administration that is likely to come in the next few months, will help on that.
Europe, as mentioned, is lagging a little bit behind. We're currently seeing a double dip both in the Euro area and in the UK in the fourth quarter and more so in the current quarter given the lockdowns. But even there, we expect a fairly sharp reacceleration of growth stating sometime in the second quarter.
So growth outlook very good. Inflation, there's a lot of talk about inflation risk in the markets. However, we don't see any of it in the data and we do not expect to see any significant inflation pressures this year. We think inflation will remain below target, some near term volatility due to base effects and the recent runup in oil prices, but overall, inflation still very subdued.
So the overall macro outlook is very good for this year. Having said that, we think there are risks out there. There are risks to our optimistic baseline.
Text on screen: TITLE – Three risks to the baseline outlook. BULLET POINTS – Fiscal fatigue; China credit tightening; Economic scarring
And I'll just briefly mention three of them. The first risk is fiscal fatigue which may creep in later this year and more so in 2022. Secondly, China credits tightening, which is something that we are likely to see in the course of this year. And that could have some global ramifications. And then the third risk is the economic scarring that we are likely to get due to the pandemic which is likely to effect, have some longer-term consequences, both for consumer spending, but also for corporate investment.
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