Global Debt Outlook Q2 2021

A global recovery is well underway, with growth estimates for 2021 being raised across the board. Our own growth estimates for the US, eurozone, and selected emerging market countries have moved toward the top end of our forecast ranges. This indicates our growing confidence that this year’s global growth could be the best in over a decade. While the initial upswing will likely be led by the US and emerging markets, especially Asia and China, an expected upswing in Europe will probably extend the recovery to a true, global reflationary boom.

The major risk factor for global growth, in our view, is China. We see upside risk to our Chinese growth estimate of 8.5% (on the back of massive US fiscal stimulus), which is already at odds with the Chinese government’s official estimate of around 6% average annual growth under its five-year plan. This discrepancy is unusual since, for the last decade, markets have grappled with the opposite situation – reconciling consensus growth estimates that are below official Chinese forecasts. However, China’s five-year plan estimates are not growth forecasts but a reflection of official policy goals intended to avoid the excess leveraging mistakes following the global financial crisis and an acknowledgment that long-term growth in China is on a declining trend. Nevertheless, improved global growth forecasts still imply that the global economy will not achieve its trend output until 2022, and, therefore, inflation is not likely to be a significant concern. While recent inflation has been dominated by rising goods prices, the coming boom is likely to be focused on services, where we believe the output gap is too large to result in immediate inflationary pressures.