Outlook 2021 – Q3

The second quarter of the year was marked by the gradual reopening of many economies and a recovery in activity that was stronger than expected. This recovery was driven by a demand shock and continued accommodative central bank policies, despite inflationary pressure caused by a delay in supply.

These dynamics are in sharp contrast with those observed during the two middle quarters of 2020, which were described as disinflationary periods, as they were characterised by a sharp reduction in demand.

Compared to other crises, the pandemic we are experiencing allows us in any case to measure one important aspect: the very rapid transition of economic and market regimes. This observation raises several questions. Which part of the cycle are we in? What impact is the current situation having on the dynamics of monetary policies, especially that of the Fed? What allocations should be made in this environment?

Where are we in the economic cycle ?

In order to answer this question, we must take a step back, review the cycle, and take stock of the growth and inflation figures for the second quarter, as well as expectations for the coming quarters.

But before that, it is important to distinguish between actual economic growth and potential economic growth in order to understand the different phases of the economic cycle. While the former concept coincides with performance actually achieved, the latter estimates the value of goods and services produced by an economy if labour and capital are used at their maximum efficiency. More specifically, we are talking about a period of steady growth that allows for stable inflation and supports full employment, and where demand does not exceed supply. Each economy has different levels of potential growth, which is defined by structural factors such as the number of working-age people, the labour force participation rate, or capital stock. Actual growth can therefore be below or above this level.

To read all of our investment recommendations,
please download your publication …