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The global economy is showing signs of recovery, with several key regions poised for growth. Here's a roundup of the latest economic news from around the world.
In the United States, the intermittent increase in inflation remains the main challenge. Despite this, the US Federal Reserve, led by Chairman Jerome Powell, is not expected to raise interest rates imminently. Instead, markets fully price in a rate cut in September 2025, with a rate hike considered unlikely this year due to inflation dynamics and careful Fed communication.
The US economic recovery is expected to continue in the second half of 2021, driven by a dynamic increase in employment. The private sector demand showed double-digit growth in the first half of the year, and the US economy grew by 6.4% in the first half of 2021.
Across the Atlantic, the Eurozone economy is poised for a strong recovery. While inflation in the Eurozone has recently increased, it is expected to fall below the European Central Bank's target in 2022. The EU Recovery Fund, worth 750 billion euros, has been ratified by the national parliaments and aims to support the recovery in countries most affected by the pandemic by facilitating public investments.
Moving eastward, Japan's economic growth is being supported by both monetary and fiscal policies. The country's vaccination rates are quickly improving, making the outlook for the second half of 2021 promising. The global economic recovery is a primary focus for Japan's export-oriented manufacturing sector.
Emerging markets are generally optimistic due to growth trends in developed countries. Abundant global liquidity, relatively attractive valuations, and growth differentials are driving emerging markets' performance. Global inflation concerns are waning, and currencies of emerging markets are starting to depreciate due to the US monetary policy expected to be less accommodative in the future.
Emerging markets could benefit from improved terms of trade and a promising medium-term growth outlook. Current spread levels offer an appropriate compensation for an overweight position in emerging market bonds. For tactical reasons, there is an overweight in equities and an underweight in fixed-income securities.
The continuation of countercyclical policies and unprecedented monetary and fiscal policies are expected to support global emerging markets' growth recovery. The Federal Reserve has signaled an increased likelihood of an earlier start to its interest rate hiking cycle, but not before 2023. The tightening cycle in the US is expected to begin in early 2023, but could start as early as late 2022.
Lastly, the EU Recovery Fund aims to support the recovery in countries most affected by the pandemic by facilitating public investments. This coordinated effort is a testament to the resilience and cooperation of the global economy in the face of unprecedented challenges.
In conclusion, while the global economic recovery is underway, challenges remain. However, with continued support from monetary and fiscal policies, and the resilience of the global economy, there is hope for a strong and sustained recovery in the months and years ahead.
