The global economic outlook remains favourable - Guy Wagner - March 5th 2020

Despite efforts to contain the spread of the virus, the global economic outlook remains favourable, write Guy Wagner, Chief Investment Officer at BLI - Banque de Luxembourg Investments, and his team, in their monthly analysis, 'Highlights'.

In the United States, the government's stimulus cheques significantly boosted retail sales at the beginning of the year, following weak domestic consumption in the fourth quarter of 2020. Guy Wagner, Chief Investment Officer and managing director of the asset management company BLI - Banque de Luxembourg Investments

"The likely approval by the Senate and Congress of the $1.9 trillion government relief plan proposed by the new Biden administration should provide considerable support for the economy throughout the year."

Economic recovery in Europe less consistent

In Europe, the economic recovery has been less consistent, with services activities remaining heavily impacted by relatively strict social-distancing measures in most countries. "The disparity in the level of activity between the secondary and tertiary sectors should narrow as the spring brings warmer weather and the vaccination rollout rate starts to climb", underlines the Luxembourgish economist. In China, the slump in travel during the traditionally busy Chinese New Year period may weigh on first-quarter GDP figures without calling into question the robustness of current growth. In Japan, the publication of preliminary growth figures for the fourth quarter of 2020 confirmed the continuing economic recovery, driven by business investment and exports.

Sector performances diverged significantly

Overall, equity markets performed well in February, although the gains were slightly reduced at the end of the month as share prices were impacted by rising long-dated bond yields. "In terms of sectors, performances diverged significantly, with economically sensitive sectors such as energy and finance posting strong gains, while most companies operating in activities considered defensive, like consumer staples and healthcare, even saw their share prices fall."

Continuation of an expansive monetary policy

In the United States, in his semi-annual report to the Senate Banking Committee, Federal Reserve Chairman Jerome Powell reiterated that the inflation and employment targets were far from being achieved, ruling out any possibility of monetary tightening in the near future. In Europe, ECB President Christine Lagarde confirmed the continuation of significant monetary support measures while encouraging governments to continue their national fiscal stimulus efforts.

Increase in government bond yields in the United States and in Europe

"Rising commodity prices, hopes of a gradual opening of economies in the spring, and the continuation of substantial public support measures drove government bond yields higher on both sides of the Atlantic", concludes Guy Wagner.