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August 3, 2021
The growth rate of the U.S. economy likely peaked with the second-quarter GDP result, but growth is expected to remain at historically high levels in the second half of 2021. High savings rates and consistent payrolls gains will drive consumer spending while business spending should pick up the mantle from government spending as companies strive to catch up with demand and improve workforce productivity.
Europe and Japan are just beginning to emerge from their pandemic-induced recessions as vaccination rates proliferate although the delta variant of COVID-19 may delay some economic reopenings and could perhaps lead to renewed restrictions on select activities. Several emerging markets economies continue to struggle with high infection, hospitalization, and mortality rates that may be offsetting to an extent their leverage to stronger global growth.
It appears China may be willing to sacrifice a certain amount of growth to assert greater government control over some sectors of the economy. With the post-pandemic export boom peaking and industrial production slowing as countries work to localize supply chains, expect Chinese GDP growth to slow to approximately 5% annually by year-end.
Above-average economic growth with monetary policy remaining largely accommodative over at least the next six months should favor equities over core fixed income assets. Interest rates and inflation will not be meaningful market headwinds through year-end, although the progression of the delta variant of COVID-19 is a somewhat unexpected development that could lead to a late summer/early fall equity market pullback. Low rates on short and intermediate-term fixed-income securities should prevent a more severe decline as corporate earnings continue to grow.
For more insights, contact a Cerity Partners advisor.
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