The Banking Executive Magazine - April 2021

The Global Economy’s Uneven Recovery The US and China are shaping up to be the main drivers of global growth in 2021. Household consumption and business investment have surged in both economies, along with meas- ures of private-sector confidence. In- dustrial production has rebounded in most countries, firming up commod- ity prices and international trade. Nonetheless, the US, China, India, Indonesia, and South Korea will probably be the only major economies to exceed pre-pandemic GDP levels by the end of this year. In most other regions, the 2020 reces- sion will most likely leave longer- lasting scars on both GDP and employment. The US economy is poised for a breakout year, as massive fiscal stim- ulus, loose monetary policies, and pent-up demand translate into rapid GDP growth. Renewed consumer and business confidence has led to generally strong consumption and in- vestment growth, and financial mar- kets have continued to perform well. Even labor market performance has been more encouraging, with 916,000 new jobs added in March, more than double the total for Febru- ary and the most since last August. The task for monetary policymakers this year will be to separate phantom inflation (the imminent bounce-back after 2020) from underlying wage and price pressures. The rise in gov- ernment bond yields – which reflects a combination of better growth prospects, inflation risk, and debt concerns – reflects the challenges that policymakers will face as they try to decipher and manage market expectations. Ideally, any additional stimulus measures will aim to boost aggregate demand and improve long-term productivity simultane- ously. Meanwhile, China’s growth momen- tum has stayed strong and balanced, with the government turning its at- tention to medium-term structural is- sues and the containment of financial-system risks. The recent National People’s Congress backed a renewed focus on rebalancing de- mand toward household consump- tion and shifting the sources of out- put growth toward high-end manu- facturing, the services sector, and small and medium-size enterprises. ISSUE 148 APRIL 2021 the BANKING EXECUTIVE 9