Key Global Monthly Views: Vaccine Access Resulting In Two-Speed Recovery Risks

• The global economic recovery remains strong, as such Fitch Solutions has maintained its 5.7% global growth forecast despite several upward revisions, mostly in Europe. The cause of the upward revisions was mostly attributed to faster than anticipated vaccination programmes.  However, Fitch's estimate remains below the consensus (6.0%) as they believe that while growth will continue over the coming quarters it is in the process of peaking. 
• Although purchasing managers' index readings remain quite positive across the 26 economies that Fitch tracks regularly, readings declined in 10 economies from April to May 2021, which suggests that activity in several economies may be peaking. 
• In particular, it can be highlighted that there are mounting downside risks to growth in emerging markets given a sharp rise in COVID-19 infections amid a slow vaccine rollout, rising nominal interest rates as central banks tighten policy in response to rising inflation and increasing political risk. 
• In terms of cross-asset strategy, Fitch’s views remain unchanged from June 2021, and risk appetite has remained fairly positive, but they note some minor shifts. For example, the decline in US bond yields, which was likely a re-pricing of growth and inflation to the downside. This could provide some support to equity markets over the coming months but could also be signaling some challenges to the US and global growth. 
• Moreover, low nominal bond yields and elevated inflation that compress real bond yields in the US could see the US dollar index continue to trade sideways over the near term. Emerging markets are also now facing several risks that could weigh on the performance of their assets.

(Source: Fitch Solutions)