Economic outlook webinar: Will Covid-19 leave scars on the world economy and how are the debt markets reacting?

Highlights from the webinar:

• The UK’s latest recession was the sharpest fall in GDP since the Great Frost of 1709, when the country lost much of its agricultural harvest.

• Both the UK and US are now bouncing back strongly. Inventory levels are low, boosting demand as companies rebuild stocks. Corporate investment also looks healthy, with many businesses looking to upgrade IT systems.

• Data from China has been strong, but there are clouds on the horizon. The growth in borrowing is slowing and GDP may well follow suit, potentially depressing demand for commodities.

• We still see the ongoing spike in inflation as temporary. The real driver of inflation is wages. And with plenty of slack in the labour market, we think wage increases will remain under control.

• We see the Federal Reserve slowing its bond purchases later this year and starting to raise interest rates in 2022. We don’t expect the UK to start raising interest rates until 2023.

• High debt levels mean that interest rates will have to rise slowly and remain relatively low.

• Debt-to-GDP in advanced economies is now at the highest level since World War Two, when it was bought back under control through years of austerity. Policymakers are now much more wary of austerity.

• In advanced economies, government budgets will improve over the next few years – but are likely to remain in deficit. As a result, the stock of government debt will continue to rise.

• The low cost of debt is keeping the show on the road. In fact, despite the ever-increasing debt load, very low interest rates mean interest payments  have fallen. 
• Investors will be very focused over the coming months in assessing whether the rise in inflation will be more or less transitory – and what it means for interest rates.