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March 2, 2021
Fiscal policy relief and the prospective reopening of the economy have been important upward drivers for U.S. equities over the last several months. The anticipated third fiscal relief bill should further boost consumption. This boost, combined with strong production and housing increases, has many economists scrambling to increase first-quarter and full-year 2021 growth estimates. The most significant risk to this outsized GDP growth is the inflationary implications of higher-than-expected demand and relatively lean inventories. Assuming supply catches up to demand quickly, any inflation this year should be transitory. Intense global competition and productivity-enhancing capital investment are vital for preventing longer-term inflation.
Japan should also experience positive first-quarter growth thanks to a smaller-than-expected drop in sales and strong corporate and capital spending. The country’s production and export-driven economy is well-positioned for a sustained rebound. It should benefit from continued growth in the U.S. and China. Of all the major countries, China appears the strongest right now. Its expected GDP growth for 2021 is 8%, although this number could decrease if Chinese consumers don’t fully re-engage. Despite all this positive news, not all regions are improving. Europe is experiencing a slight recession. A second-half recovery is possible for this region if vaccination rates increase as expected in the second quarter.
Monetary Policies/Currencies
Commodities
Asset markets continue to face more tailwinds than headwinds. However, the recent upward shift in the yield curve bears watching. At this point, the higher rates primarily confirm a cyclical recovery and vindicate the aggressive policy response. We are closely monitoring the ultimate impact on inflationary expectations and the subsequent monetary policy response, given current market valuations.
For more insights, contact a Cerity Partners advisor or visit the thought leadership section of ceritypartners.com.
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