Economics

Q2 economic outlook: exuberance driving great expectations

A new report from NatWest is more optimistic than most about global economic growth.

24 May 2021 . 2 min read

A consumer-led recovery spurred by accommodative fiscal and monetary policy will propel the global economy further than many others are predicting, say specialists from NatWest Markets. In the deep-dive report, Michelle Girard, managing director, co-head global economics, head of strategic coordination and business operations, US; Ross Walker, chief UK economist; and Sam Boughton, director, corporate syndicate, NatWest Markets, set out the themes shaping their outlook for Q2.

Although risks remain for corporate decision-makers, the report’s authors predict an exuberant recovery, with 15% – 20% of “forced” savings to be spent over the next year, and global GDP to advance by 6.6% in 2021. Strong vaccination rollout and the lifting of lockdown restrictions, allied with fiscal stimulus, will see developed economies, particularly the US, outperform. This consumption-led rebound will be coupled with a gentle lift in inflation – possibly 2.5% by the end of 2022 in the US and a more temporary rise in the UK and euro area. Although the report does not necessarily predict changes to central bank policy rates, it does anticipate bond yields will continue to rise.

Government spending looks set to continue, especially in the US. The UK will see an additional £59bn of fiscal support, while the euro area will see fiscal top-ups add 1% – 2% of GDP. With deficits on the rise, tax hikes are likely but not expected to significantly dampen consumption or demand.

Despite rising rates, the credit environment will likely remain supportive, says the report. The authors expect to see declining investment-grade senior corporate bond issuance in the UK, Europe and the US, and rising investor appetite for longer-dated bonds along with the broader trend towards high rates and steeper yield curves. High-beta issuers, or bond issuers that are sensitive to shifts in consumer sentiment or market movements, should outperform in Q2, and the renewed urgency around sustainability should see green, social and sustainability linked (GSS) bonds continue to perform well, too.

To read the report in full, and for more insights, visit NatWest Corporate & Institutions.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of NatWest Group, as of this date and are subject to change without notice. Copyright © NatWest Group. All rights reserved.