Light at the end of the tunnel?

12th April, 2021

The global economic outlook has improved, according to the Organisation for Economic Cooperation & Development (OECD), which upgraded its growth forecasts, as vaccine rollouts gain momentum and governments – particularly the US – provide stimulus support. The OECD raised its prediction for global economic expansion from 4.2% to 5.6% in 2021, and from 3.7% to 4% in 2022, but warned that the swift and effective deployment of vaccines and the control of any future Covid-19 mutations remained crucial.

President Biden’s US$1.9 trillion Covid relief bill was approved and signed into law during March. The American Rescue Plan will provide direct payments of US$1,400 to 85% of households in the US, extend unemployment insurance, and provide a substantial boost for the economy, although there is speculation that these stimulus measures will stoke inflationary pressures. Nevertheless, investors drew reassurance from the Federal Reserve’s pledge to continue its support for the economy. The Dow Jones Industrial Average Index rose by 6.6% during March.

In the UK, there is “light at the end of the tunnel”, according to Bank of England Governor Andrew Bailey, who cited declining infection rates and a successful UK vaccine programme; he warned, however, that the pandemic had inflicted both a demand and a supply shock to the economy. The Government extended the furlough scheme to the end of September in its March Budget, alongside shorter extensions to the stamp duty holiday and the business rate holiday. Although the Chancellor of the Exchequer did not increase income tax rates, the personal taxation thresholds were frozen until 2026. Over March, the FTSE 100 Index rose by 3.6%.

In Europe, however, sentiment was undermined by the slow rollout of the Covid-19 vaccination programme, and by a third wave of infections in countries including France, Italy, Poland, and Germany. Rising infection rates led to fresh lockdown measures across large areas of mainland Europe, raising concerns that the shutdowns will cause further delay to Europe’s economic recovery. Nevertheless, key European share indices ended the month strongly, buoyed by demand for stocks in the automotive and banking sectors. In particular, fears of widespread fallout from the default of US hedge fund Archegos subsided, providing a boost for banking shares. The Dax Index rose by 8.9% during March, while the CAC 40 Index climbed by 6.4%.

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This article was sourced from Adviser-Hub.co.uk.

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