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Macroeconomic picture - January 2021


Developed Countries

Emerging Countries

Macro and Market forecasts

Disclaimer to our forecasts



January 2021


Janvier 2021






  • United States: after a record contraction in Q2 and an extraordinary rebound in Q3, we expect a significant deceleration in Q4 that will also be influenced by the new rise in Covid-19 cases. However, the potential weakness in Q1 2021 could be partially offset by the implementation of the new fiscal package which, along with expansionary monetary policy, will provide a key support to economic growth in 2021. While the start of the vaccination campaign is helping to lift sentiment, herd immunity will likely be reached only from H2. Inflation is expected to remain within target, with a temporary mid-year overshoot, due to base effects.
  • Eurozone: after the strong rebound in early Q3, Q4 is set to print a new GDP contraction (albeit more limited than in Q2) as new rises in Covid-19 cases have pushed Eurozone governments to implement new lockdowns. While the start of the vaccination campaign in Q1 will lift sentiment, herd immunity will likely be reached only from H2, when we expect pent-up demand to be released and support above potential growth, helped by an extraordinarily easy mix of monetary and fiscal policies. Inflation should remain subdued in the near term before moving gradually higher in 2021, but will remain significantly below target.
  • Japan: the winter pandemic outbreak has prompted us to downgrade Japan’s GDP growth forecasts for Q4 2020 and Q1 2021. That said, we don’t expect the economy to fall into outright contraction again, given the relatively low infection rate and limited deterioration in mobility data. With lingering uncertainties of global recovery and Japan’s own chronic demand deficiency, we are not forecasting its economy to return to its pre-Covid level until the end of 2022. The deep negative output gap will keep inflation at a subdued level.
  • United Kingdom: the economy technically rebounded in Q3 after the record dip in Q2. However, a new wave of infections and lockdown will cause further contraction in Q4. The start of the vaccination campaign in Q4 will lift sentiment, but herd immunity will likely be reached only from H2 when we expect the economy to regain momentum. The pressure on the labour market is severe, with a high degree of slack, despite new job support schemes. Fiscal and monetary policies remain supportive, while additional measures cannot be ruled out should the economic situation deteriorate due to the impact of Brexit.
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  • Fed: the Fed has introduced a forward guidance on asset purchases. Purchases at the current monthly pace of $120bn will continue until substantial further progress has been made toward maximum employment and price stability goals. With unemployment expected to reach 4.2% and inflation 1.9% at the end of 2022, a gradual tapering could start in 2022. Given the low level of interest rates and highly accommodative financial conditions, the Fed is unlikely to increase the maturity of purchases unless circumstances deteriorate substantially. We see policy rates remaining at the zero lower bound until 2024. Powell has warned that it will take time to get to an overshoot of inflation given significant disinflationary forces.
  • ECB: the package delivered combined an increase in and nine-month extension of the PEPP and an extension to the TLTRO with a broader scope and confirmed favourable terms. A longer-than-expected extension of the PEPP into Q1 2022 looks consistent with both the size and duration of the stimulus. The ECB will maintain favourable funding conditions for the time needed for economic growth to recover from the pandemic crisis: in this respect, the QE increase and extension means there will be enough market presence and flexibility to reach the target.
  • BoJ: the BoJ extended its Special Programme to Support Financing from end-Mar to end-Sep 2021, as widely expected. It 1) combines the quota for purchases of CP and corporate bonds into a total of JPY15tn, and 2) removes the upper limit of JPY100bn on special lending provided by FIs to each counterparty. In addition, the central bank will review its monetary easing to ascertain whether it is effective and sustainable, and will release the results in March 2021. But there will be no change of the “QQE with YCC” framework. Instead, we believe tweaks of asset purchases are likely.
  • BoE: as widely expected, the Bank of England kept its monetary stimulus unchanged, pending eagerly awaited developments on Brexit negotiations and on the back of the package already delivered in the previous meeting, which surprised the consensus on the upside in relation to the QE extension and increase. The trade issue is the main potential driver of a change in future policy stance, with a no-deal posing clear risks of additional stimulus being needed, while if there is a trade deal, the current accommodative policy is likely to remain unchanged in the near future.
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  • China: solid November data and the reported surge in electricity demand in Southern China in December suggest Q4 GDP growth is tracking higher than our forecast 5.5% yoy. Chinese exports and industrial production growth has held more resilient than originally expected. Meanwhile, the domestic recovery is broad-based and increasingly driven by private demand and the services sector. The headline CPI was dragged down by declining pork prices and will stay transitorily negative until March 2021. Core inflation has bottomed out and held positive.
  • India: moving into Q4 2020, economic conditions have remained favourable though the acceleration lost steam during October/November (electricity generation, vehicle sales and exports have decelerated). On the inflation side, the short-term peak was behind us (7.6% yoy) in October and prices are now converging within the RBI target, which is expected to be reached by December 2020. Having said that, the inflation path in 2021 will stay robust (higher than the official forecasts), flirting with the upper band of the 6.0% target, triggering a more neutral stance by RBI in our expectations.
  • Turkey: the CBRT hiked its rates by 200bp with the main policy rate at 17%. Delivering further tightening than expected by markets (150bp), the CBRT is clearly aiming to shore up its credibility and signaling its commitment to orthodoxy. This move may help to anchor inflation expectations and to contain inflationary pressures. The lira appreciated on the back of this decision. The policy rate may have reached a peak but is expected to remain unchanged throughout 2021 as inflation is forecast to be around 15% yoy on average due to FX pass-through and price inertia. Erdogan may turn to fiscal measures to support the economy.
  • South Africa: real GDP contracted in Q3 by 6% yoy (vs. 17% in Q2), highlighting the depth of lost output from the second quarter lockdown. The resurgence of the virus is leading to further restrictions that may hamper the recovery and could drag down more fiscal indicators. A rise in public spending in order to fight the negative impacts of Covid-19 on health and the economy would limit the narrowing of the public deficit that is expected next year and the likelihood of stabilising the debt-to-GDP ratio that is already being questioned by the markets.
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  • PBoC (China): the annual Central Economic Work Conference (16-18 December) suggests that China will continue its policy normalisation in 2021, but avoid an abrupt exit from policy stimulus. Money supply and aggregate social financing will grow “in line” with nominal economic growth, a downgrade from “notably above” in H1 2020. In light of a paced policy normalisation, we don’t expect any immediate rate hike in 2021. Assuming largely stable macro leverage ratio, we expect total social financing growth to slow from 13.7% at end-2020 to 11.6% end-2021, still faster than pre-Covid’s 10.7%.
  • RBI (India): on the 4th of December the RBI decided to keep its policy repo rate unchanged at 4.0%, together with an accommodative stance as long as necessary, in order to support the economy. The inflation outlook was ultimately revised upwards, with headline Inflation returning within the CB target soon, starting from December 2020. While the official short-term inflation outlook is coherent with our internal forecasts, moving into fiscal year 2021-22, we do expect an overall higher inflation (between 5.5%-6.0%), and, accordingly, no further easing by the RBI.
  • BCB (Brazil): the BCB kept rates on hold unanimously at the ultra-accommodative rate of 2% but indicated that forward guidance conditions might soon not apply. The relevant horizon of monetary policy, after all, is switching increasingly to 2022, when inflation forecasts are around the target. This, however, does not mean rate hikes would follow immediately, despite near-term inflationary pressures – the CB sees the latter as transitory – as the economy continues to need exceptional level monetary accommodation and the Fed is in no hurry to renormalise either. We continue to think the BCB will remove the emergency cuts only gradually, starting in the later part of the year.
  • CBR (Russia): the Central Bank of Russia left its policy rate unchanged at 4.25% at its December 18th meeting, on a less dovish note. The CBR expects inflation to be in the range of 4.6-4.9% at the end of 2020, higher than previously forecast, part of the reason being the pass-through from rouble’s earlier depreciation. December inflation reached 4,9% yoy, but should decline in 2021. With stronger short-term inflationary factors and expectations for a faster global economic recovery, disinflationary risks for 2021 have been reduced. As a result, the CBR will be assessing whether there may be a need for an additional key rate reduction. Taking into account the various factors, we expect a 25bp cut in H1-2021.
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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.


Bandeau methodology
  • 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.


Amundi Research
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Macroeconomic picture - January 2021
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