Global Macro Outlook - Second Quarter 2021

Key Forecast Trends

The near-term outlook for global growth is likely to be determined by two key factors: the pace of COVID-19 vaccination programs and fiscal stimulus.

The US is at a significant advantage over other advanced economies in these areas, and we expect economic growth there to reach 6.5% in 2021 and 4.6% next year. This would push the level of output above the pre-pandemic trend.

With rising COVID-19 cases likely to delay the reopening of economies in Europe, we’re more cautious on the euro area’s prospects. Output there is not expected to reach pre-pandemic levels until well into 2022.

In China, output is already above the pre-pandemic trend. With economic and social stability paramount, China is likely to exert a stabilizing influence on global growth.

We think the global economy is on the cusp of a new, more inflationary, regime. The first signs of this may become evident as base effects and higher commodity prices push headline inflation temporarily higher.

This is a more challenging backdrop for central banks. The US Federal Reserve (Fed) has been surprisingly relaxed about rising bond yields but may be approaching the limits of its tolerance—especially if the equity market comes under pressure.

Other advanced-economy central banks are in a different place and will continue to push back strongly against rising bond yields. The return of US exceptionalism should continue to support the dollar against the euro and the yen.

Forecast Overview

Key Assumptions

Virus: cyclical impact should fade as vaccination programs start to gain traction
Vaccine: pace of vaccination programs to be a key driver of near-term cyclical divergence
Fiscal policy: highly supportive at the global level; the US now leads the way
Monetary policy: central banks to keep policy rates anchored and yields below precrisis norms
Secular backdrop: headwinds to be exacerbated by COVID-19

Central Forecast

Global growth: strong rebound likely after soft first quarter
Reflation: fiscal stimulus to push US output above precrisis trend; more gradual recovery elsewhere
Inflation: regime shift underway; 2021 outlook still nuanced but upside risks rising
Yields: joined-at-the-hip to be tested as economies recover; yield rise likely to be modest
USD: higher against EUR and JPY but supportive environment for growth-sensitive currencies

Key Risks

Virus: Virus mutations/vaccine failure push recovery back into 2022
Bond yields: Central banks fail to control the reflation narrative; yield rise turns disruptive
Inflation: Are we ignoring historical warning signs of inflation: sharp rise in demand when supply is impaired; fastest broad money growth since the 1980s; newfound acceptance of money-financed fiscal stimulus?

Past performance, historical and current analyses, and expectations do not guarantee future results. There can be no assurance that any investment objectives will be achieved. The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication. AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guarantee that any projection, forecast or opinion in this material will be realized. Past performance does not guarantee future results. The views expressed here may change at any time after the date of this publication. This document is for informational purposes only and does not constitute investment advice. AllianceBernstein L.P. does not provide tax, legal or accounting advice. It does not take an investor’s personal investment objectives or financial situation into account; investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service sponsored by AB or its affiliates.

The views expressed herein do not constitute research, investment advice, or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.