PORTUGAL 2021 Midyear Market Outlook

Building a Sustainable Recovery

Global growth is reviving, but inflation and interest rate pressures create risks

Shift Seen From Stimulus to Consumption

Accelerated vaccine campaigns, additional fiscal and monetary stimulus, and a surge in business activity as global industries reopen appear to have set the stage for strong economic growth in the second half of 2021.

Less clear is whether that momentum can be sustained once stimulus measures are trimmed back and economies move beyond easy year-over-year comparisons with the depths of the pandemic recession. But stronger consumer spending could pave the way for a prolonged boom.

Questions about when and how quickly interest rates could rise create potential flashpoints for market volatility.

Growth Outlook

China and the U.S. led global growth in early 2021.
The recovery appears poised to widen in the second half.

Inflation Pressures

Officials say they think recent price pressures are temporary.
Higher wages, fiscal deficits, and baby boomer retirements could drive structural inflation.

The Takeaway

The global recovery is on track, but year-over-year growth comparisons will get harder.
Consumers will need to take a lead role in driving growth as stimulus is cut back.
There is a case for higher inflation, but interest rate markets don’t seem deeply alarmed.

China and the U.S. Drive Global Growth

China and the U.S. have led the global recovery so far. Faster growth could extend to other economies in 2021’s second half, but some countries and regions, such as India and Latin America, continue to struggle with the pandemic.

Stronger consumer spending potentially could benefit the travel and hospitality industries, airlines, restaurants, and medical services.

A key question: Will economic growth be strong enough to meet earnings expectations without fueling inflation?

A V-Shaped Recovery So Far
Real Gross Domestic Product (GDP) year-over-year growth rates

As of March 31, 2021
Sources: T. Rowe Price, Haver Analytics. Copyright ©2021 (See Additional Disclosures). T. Rowe Price calculations using data from FactSet Research Systems Inc. All rights reserved.