Part 3 : Towards a stronger-than-expected economic rebound?
Monetary and fiscal support will remain significant factors over the next twelve to eighteen months.
In the United States, the Democrat majority in Congress will allow the implementation of new stimulus measures, which promise to be massive, financed by a likely increase in corporate income tax. While fiscal support in the eurozone may be less significant, a tightening is not on the agenda and the Stability and Growth Pact safeguard clause will probably apply until 2022. International institutions are not currently calling for support to be scaled back, whereas this issue arose very quickly after the 2008 financial crisis.
This apparent shift in the fiscal policy paradigm also applies to monetary policy, with central banks moving towards more long-term accommodative policies. Broadly speaking, higher interest rates are out of the question and securities purchases are set to continue.
Against this backdrop, the use of accumulated savings and latent demand related to social restrictions may trigger a strong pick-up in economic activity in 2021, especially as the third quarter of 2020 showed that when lockdown restrictions are relaxed, economic activity picks up sharply.
In the short term, the main risk factor for the economic recovery appears to be the degree of vaccine efficacy against the new COVID-19 strains. In the medium term, the extraordinary level of money creation along with the rise in raw materials prices could increase the risk of higher inflation.
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The opinion expressed above is dated January 2021 and is liable to change. Latest available data as of publication date.
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