Despite headwinds to growth – such as new COVID variants, supply bottlenecks and labour shortages in some countries – we believe the global recovery is on track. Indeed, the spread of the Delta variant may have delayed economic activity rather than derailing it – meaning growth in the coming quarters could be modestly more robust than it otherwise might have been.
Although the fiscal and monetary stimulus measures that sustained the initial stages of the recovery appear to have peaked, key central banks are likely to move only gradually to a tightening stance. As the tailwinds of stimulus fade, we believe the focus of growth will shift to infrastructure spending, including the green transition.
The key question is whether the surge in inflation proves to be transitory or persistent. Inflation in many key economies is currently at levels not seen this century, leaving markets uncertain as to how best to react. Investors will need to watch closely to see what steps fiscal authorities and central banks take to stem price pressures while sustaining growth.
