Macroeconomic and equity market backdrop
Overall we expect the global economy to continue to exhibit decent growth underpinned by ongoing vaccine roll out. The strongest period of growth – the recovery phase – is now likely behind us, and we expect global GDP growth of 5.7% in 2021 and 4.4% in 2022.
There are a growing number of risks that could derail the pace of global recovery and drive volatility in equity markets. The delta in fiscal impulse is starting to turn negative. Supply constraints are driving inflationary pressures, especially evident in sharply higher commodity prices, which is a common theme across many economies.
Amid the recent rise in bond yields, the equity market still appears, on balance, to be pricing in the ‘transitory’ inflation narrative of central banks. However, increased ‘inflation anxiety’ will likely drive increased equity market volatility. Furthermore, concerns about supply disruptions could start to impact corporate revenues and earnings guidance, especially in areas of the market suffering from the greatest supply and demand imbalances.
While our central scenario is that the global economy will continue to grow, which will support earnings and equity markets, there are mounting risks that argue for a more cautious stance. Given this back drop we update our outlook for equity market factors below.