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World News See other World News Articles Title: Why Nomura Expects "Turbo-Charged Global Inflation" Economist Lewis Alexander, and his team at Nomura, wastes no time in his latest monthly global economic outlook report - titled aptly enough "Turbo-Charged Global Reflation" to get to the point: "in addition to vaccines and policy stimulus, an economic recovery synchronized across regions will add further impetus to global reflation." What follows is a comprehensive and mercifully succinct summary of Alexander's views covering every global region, and justifying why Nomura believes a tidal wave of inflation is about to be unleashed: Democratic control in Washington means more fiscal stimulus, but partisanship and narrow majorities will likely constrain policy. The pandemic will weigh on short-term activity, but the vaccine outlook is positive for the medium term. We expect constant Fed asset purchases through 2021 before a gradual taper in 2022, but risks skew towards earlier action. The Fed will likely stay at the ELB at least through Q2 2023 with inflation remaining the key determinant to liftoff. The unemployment rate will decline more gradually from here as the pace of recovery slows relative to the post-lockdown rebound. COVID-19’s impact on service prices and the impact of labor market slack, particularly on rent, will weigh on core inflation. Notable risks include new SARS-CoV-2 variants along with both upside and downside risk around fiscal policy. Europe With lockdowns still in place we see euro area GDP falling at a similar pace to Q4 in Q1, then recovering from Q2. While underlying inflation remains low, base effects and policy changes should raise headline inflation sharply this year. With GDP rebounding and inflation rising in the short term, we expect the ECB to keep policy on hold this year. UK lockdowns should have a smaller effect on GDP than last spring. A full recovery in GDP takes until beyond 2022. While pent-up demand and policy stimulus should be supportive, we expect a renewed fall in GDP in the current quarter. After another £150bn of QE we think the BoE is done with easing. We do not expect negative rates, but risks remain. Japan As the government declared another state of emergency, q-o-q real GDP growth in Q1 2021 should be negative again. With the prolonged pandemic pushing down inflation, suspension of the GoToTravel campaign will technically increase the rate. We do not expect the Suga cabinet to make any significant change in economic policy and in BOJ’s monetary policy. The risk is renewed yen appreciation, caused by deepening US-China tensions and further risk averse moves in markets. Asia Asia’s growth cycle appears to be headed higher, led by exports and investment, but private consumption should join in H2 2021. Vaccinations, faster global growth, the tech upcycle and lagged effects of easier financial conditions should support the recovery. Positive growth surprise likely in China, India, Singapore, Korea and Taiwan, but Thailand, Malaysia and Philippines likely to disappoint. Higher inflation is likely on base effects, the end of government subsidies, higher commodity prices and a narrowing output gap. Policy rates will likely be left unchanged this year, but hikes are likely in China, India, Indonesia, Malaysia and Philippines next year. China: We expect the growth recovery and Beijing’s gradual policy normalization to resume following the containment of Covid-19. Korea: We expect Korea’s sequential growth momentum to improve in Q1 on stronger-than-expected export growth. India: Economic normalization amid above-target inflation suggests rates on hold and a gradual withdrawal of excess liquidity. Indonesia: Rising inflation amid debt monetization and current account deficits could test monetary policy credibility. Australia: The stronger-than-expected rebound continues, though central bank guidance, for now, remains dovish. Post Comment Private Reply Ignore Thread
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