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.

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