Vaccine supply, effectiveness and hesitancy mean that different economies will see an easing of official and voluntary social distancing, and the associated rebound in consumer services, at different times. Fiscal policy will also vary within DM economies, while EM economies have little space for post-crisis fiscal stimulus packages, despite having suffered greater scarring. Finally, interest rate normalization has already started in some EM countries, but most major DM central banks are not looking at rate hikes in 2022.
These divergent forces will mean that the 20 countries we cover have different trends for GDP and inflation, which will also have an impact on forward guidance for monetary policy.
Risky financial markets have discounted a lot of the economic good news, while real bond yields are low by historical standards. This makes for a trickier environment for asset allocation over the next 12-18 months, given the divergence going forward.