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February 1, 2021
Weakened U.S. consumer spending has carried over into the early part of 2021 as certain states and regions experienced renewed lockdowns and mobility restrictions. The prospect of broad vaccine distribution by the end of the quarter should unleash pent up demand. Meanwhile, the fully-recovered housing and capital spending sectors appear unaffected by the virus’ second wave. As the consumer recovery develops throughout the year, expect a pickup in inflation, particularly with energy prices. These increases will be more cyclical as opposed to the beginning of a longer-term inflationary cycle. Ample labor slack (potential supply of workers), healthy industrial production, and intense global competition should prevent inflation from hiking alarmingly higher.
Overseas, the virus-ravaged European economy saw fourth-quarter GDP decline. This drop will inevitably continue in the first quarter. Arguably, this region may benefit the most from a vaccine given its dependence on the travel and tourism sectors. Japan’s proximity to the rebounding Chinese markets continues to help drive growth and prevent a second recession. China is on target to produce approximately 8.0% GDP growth in 2021. Currently, its biggest economic risk appears to be overproduction. Although, any delays with vaccine distribution could dampen consumer re-engagement.
Monetary Policies/Currencies
Commodities
The virus’ anticipated second wave is slowing the global economy, but there are many reasons to be optimistic. The expected broad distribution of the vaccine by the end of the first quarter and ample fiscal relief mean any pullback or correction in the equity markets should be viewed opportunistically. Additionally, inflation concerns should be more cyclical than secular, and central banks should remain supportive and prevent a dramatic rise in rates across the maturity spectrum.
For more insights, contact a Cerity Partners advisor or visit the thought leadership section of ceritypartners.com.
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