The COVID-19 situation is challenging in EU with cases still rising in many countries such as Germany, France, Italy, Netherlands, Belgium and Austria. We still see April as the turning point in the crisis in the Northern Hemisphere when it comes to infections and deaths. However, for the EU we see a clear risk that the turning point is delayed into May, as vaccinations are much slower than in UK and the US. The vaccination process continues with Israel leading with a vaccination percent of nearly 114 doses administered per 100 people (first and second doses). The UK is nearly at 46% and the US is at 39% The EU is still lagging behind at 14%.
This week we released our new global macro outlook, Big Picture forecast update – Divergent fortunes, 23 March. We raised our global GDP outlook and now look for growth among G4 (US, China, Euro area and Japan) at a strong 7.2%, higher than consensus at 6.2%. US is the key driver behind our upward revision as the fiscal stimulus and speedy vaccination roll-out is boosting growth there with positive spill-over to the rest of the world. Being ahead in the post-covid recovery, China is the only G4 country where we see slowing growth during 2021. In the euro-area, we expect GDP growth to be 4.4% in 2021 (slightly above consensus 4.2%).
This week brought surprisingly strong euro area releases. The preliminary manufacturing PMI survey for March surged to 62.4 from 58 in February. This is the highest reading since the start of the publication of the figure in 1997. The service index also increased almost 49. The releases suggest that a tentative recovery took shape in the euro area at the end of Q1 with the composite measure at 52.5 back in expansion territory for the first time since September.. The German IFO report for March was also stronger than expected.
In financial markets, the US dollar continued to strengthen both against the euro but also CNY and other emerging market currencies. The US 10 year yields fell back this week amid a strong treasury auction and set back in global equity markets.
Next week the key release is the non-farm payroll in the US. We expect a slight increase in employment given the gradual re-opening of the US economy. Also on next Friday, Bank of Japan publishes its big quarterly Tankan survey, which is likely going to show an upbeat manufacturing sector whereas the soft lock down continues to weigh on the service sector. On Thursday, look out for the ISM manufacturing, which should still be at high levels. On Wednesday the euro area March HICP is expected to show a pick-up in headline inflation to 1.3% helped by rising energy prices, but core inflation will likely remain at 1.1%.
In the week of 6-9 April, the non ISM manufacturing on Monday should still be high given the partial reopening of the service sectors in many states. The FED minutes on Wednesday that week may reveal what the Fed is thinking on rate increases also in relation to the e market pricing a hike by February 2023. Central bank meetings in Australia (Tuesday) and Poland (Wednesday) take place, where the impact of surging COVID-19 cases on the Polish economy will be of focus in the latter.
