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Macroeconomic picture - September 2021

Published September 8, 2021

5 to 10 minutes

5 to 10 minutes


  • United States: The US economy continues its recovery, albeit with signs of deceleration. In light of protracted production bottlenecks and the expected deceleration in domestic demand going forward, we have downgraded our growth outlook. At the same time, while inflation is expected to peak in Q2-Q3, our projections incorporate more persistence and upside pressure, leaving CPI inflation above 3% till the middle of next year. The policy mix will remain accommodative, although on the Fed side we expect more precise communication about tapering in mid-H2; with similar timing, we expect news on the fiscal side, with new infrastructure spending.
  • Eurozone: After contracting in Q1, Eurozone GDP rebounded in Q2 as restrictions were broadly lifted; with vaccination campaigns progressing and consumer and business confidence improving we also expect solid Q3 momentum. The Delta variant represents a material downside risk for the outlook, in particular for the recovery in the service sector. In light of Q2 data, we have upgraded our growth outlook, driven in particular by Italy and Spain. The fiscal and monetary policy mix will remain accommodative, underpinning the recovery. Inflation should progress along an upward trend, with upside risks due to pipeline pricing pressure and base effects, overshooting in Q4 before reverting again below trend in 2022.
  • Japan: The recovery path ahead has become more challenging for Japan. While Q2 growth was supported by exports, US ISM and Korean exports (the regional trade bellwether) suggest external demand is peaking. At home, the vaccination pace slowed sharply after the summer Olympics, bringing additional uncertainties to consumption, which was already lagging behind the overall recovery. Inflationary pressures remain subdued, with a negative output gap. Core inflation hovered around 0%, and is expected to strengthen more meaningfully in 2022, when the drag from mobile phone charge cuts fades away.
  • United Kingdom: The UK economy expanded by 4.8% in 2Q, leaving GDP 4.4% below its pre-pandemic level. Moving into 3Q, the economy will probably benefit from the further removal of restrictions that began on July 19. The boost from the final stages of lockdown easing is not likely to repeat the reopening performance of April and May. We thus project growth to slow into year-end, followed by a slow recovery in the labour market. Inflation is expected to pick up on base effects around July/August and to remain moderately above target for several months into 2022. The policy mix will remain broadly supportive although posed for a progressive normalisation on both the monetary and fiscal front.
  • Fed: At Jackson Hole, Chair Powell reinforced the message from the July FOMC minutes that tapering could start before the end of this year if the economy evolves broadly as expected. He acknowledged strong employment gains in recent months. Any decision to begin tapering asset purchases will, however, be highly conditional on the data flow. The focus will be on the next employment report. The FOMC stressed in previous meetings that it would provide an “advance warning” that tapering is coming; this could be at the September FOMC Meeting. The formal announcement could take place in November or December.  The normalisation of its QE policy is expected to be very progressive. The Delta variant poses the major risk in the short term.
  • ECB: At its July meeting, following the outcome of the strategic review and through its new forward guidance, the ECB radically reinforced its commitment to keep rates very low for as long as needed. More important, if rates need to remain low for a long period of time, this will mean a more persistent stimulus, as APP is linked to the timing of a first rate hike. The ECB now turns its focus to discussion of QE composition and calibration for next year, starting from the September meeting, at which the new set of economic projections will be available.
  • BoJ: The BoJ extended the Special Funding Program by another six months at its June meeting, and maintained a cautiously optimistic outlook. In July, it announced a new green fundprovision scheme. We expect the BoJ to stay put compared with its peers, absent a full-fledged recovery and inflationary pressures. Suga’s approval rate fell to 30% (based on the average of six surveys) in August, but the ruling party still enjoys a wide margin in the support rate compared to the leading opposition party. Discussion of a supplementary budget is likely to start in September, ahead of autumn elections.
  • BoE: QE’s size remained unchanged at the last meeting, together with the policy stance, as the spike in inflation is assessed as temporary. Focus was on QT guidance, confirming that rates will remain the primary policy lever and indicating a lower QT rate threshold tied in with NIRP as an active policy option in the next cycle. Forward guidance pointed to “some modest tightening of monetary policy over the forecast period likely to be necessary”, but as the decision on on-going QE shows, the discussion on the timing and extent of future rate rises looks unlikely to start soon.




  • China: July’s monthly data showed a broad economic slowdown in China in production, consumption and investment. The broad policy tapering, together with sector-level tightening, was the major culprit behind the slowdown. Housing indicators dropped notably in July. Meanwhile, Delta variant risks will likely become more visible in August consumption data, given the expansion of social distancing rules since late July. As a result, we have downgraded our 2021 annual growth forecast to the range of 8.4%-9.0% from 8.6% to 9.2%, while keeping 2022 growth unchanged at 5.1%-5.7%.
  • Indonesia: Growth performance in Q3 is lacklustre, amid peaking infections but with mobility restrictions still in place. While the path is on the rise, inflation is under control in its core and non-core components and BI should stay on hold until at least mid-22. Fiscal accounts are on track, and expenditure has been reallocated towards health and social assistance with a negligible impact on the budget. However, pressure from the pandemic has prompted BI to remain engaged in its QE. External pressure from Fed tapering needs to be monitored, even with sounder external accounts.
  • Brazil: The economy is growing, normalising and synchronising, thanks to the improving Covid situation and mobility – the services sector is back to pre-Covid level for instance – and we see GDP expanding by over 5% this year. Inflationary pressures, meanwhile, a side-effect of robust growth, are not abating (at 9.3% YoY now) despite an aggressive monetary response. We think the BCB is now aiming for mildly contractionary levels, while the markets are far less constructive on inflation. Another fiscal trilemma has rattled the markets, but we think the administration will reach a fairly benign solution and find a way to deal with ‘precatorios’ while still overhauling Bolsa Familia and, most importantly, staying within the spending cap.
  • Mexico: The mid-year soft match on account of a surge in the Delta variant, supply constraints hitting the manufacturing sector, and more recently disruptions to oil production are a fairly small blip, we think, in the otherwise still respectable recovery, with growth expected to print above 6% this year. Inflation, meanwhile, is struggling with temporary-in-nature supply-side headwinds and is getting stuck at elevated and above-target levels, courtesy of core goods inflation. Banxico has responded to the inflationary pressures with a couple of hikes but, as we learned this week, future hikes are very much data-dependent – we think more hikes will be necessary before a pause is made. AMLO’s ‘prudent’ idea to use the IMF’s SDR disbursements to pay off some national debt is being viewed as a bad precedent and CB infringement
  • PBoC (China): In light of weakening growth momentum and inflation risks at bay, China’s policy stance is expected to turn more to the dovish side. That said, we expect policy loosening to come from the credit and the fiscal sides, while the PBoC should keep an accommodative liquidity stance without rate cuts (with mounting expectations of a RRR cut in Q4 2021. The MLF rate and LPR should remain on hold, with the MLF rollover staying generous, only slightly below the maturing amount and one additional RRR cut will be likely announced in late October or early November, given the MLF maturing schedule.
  • RBI (India): the latest RBI meeting in early August and recent speeches by the governor have highlighted the monetary policy bias towards growth support and away from concerns about high inflation. The RBI stance has held dovish. After the meeting the headline CPI showed a decline below the inflation target’s upper range (6%), where it’s expected to fluctuate for the rest of the year. We did push back our forecast of the first rate hike to CY 2022. Monetary policy normalisation will start with liquidity adjustments, likely by the end of the current year/early next year (CY).
  • BCB (Brazil): Early August meeting by the BCB brought yet another 100bps hike (to 5.25%) and a pre-announcement of further 100bps tightening at the meeting in September. In addition, the central bank’s acknowledged that policy rates needed to rise above neutral as inflationary pressures were not abating and additional monetary action was needed. We agree and see rates rising to 8%, or mildly contractionary levels (prev. 7-7.25%), but don’t think aggressive hikes priced in by the markets are justified – the latter would be consistent with fiscal un-anchoring and inflation landing above target (range).
  • CBR (Russia): The CBR hiked the policy rate again by 100bps to 6,5% on 23 July, as inflationary pressures intensified, and inflation expectations remain at multi-year highs. Growth in domestic demand is outpacing that of supply. July inflation slowed down slightly to 6,45% YoY from 6,5% in June, -- well above the target range of 4%. The CBR left the door open for further rate hikes in the future. For the time being, we expect 50bps hikes until year end. The next meeting is on 10 September. The hawkish stance of the CBR should continue to be supportive of the RUB






The uncertainty around the macro forecasts is very high, and it triggers frequent reassessments any time fresh high frequency data are available. Our macroeconomic forecasts at this point include a higher qualitative component, reducing the statistical accuracy and increasing the uncertainty through wider ranges around them.


  • Scenarios

The probabilities reflect the likelihood of financial regimes (central, downside and upside scenario) which are conditioned and defined by our macro-financial forecasts.

  • Risks

The probabilities of risks are the outcome of an internal survey. Risks to monitor are clustered in three categories: Economic, Financial and (Geo)politics. While the three categories are interconnected, they have specific epicentres related to their three drivers. The weights (percentages) are the composition of highest impact scenarios derived by the quarterly survey run on the investment floor.

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