Vanguard economic and market outlook for 2021: Approaching the dawn

December 9, 2020

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The COVID-19 pandemic has produced the most pronounced economic shock in nearly a century. In 2020, recessions around the world were sharp and deep, with significant supply-chain disruptions. But policymakers were aggressive in supporting financial markets and their economies. Although the global economy continues to recover as we head into 2021, the battle between the virus and humanity's efforts to stanch it also continues.

Our outlook in brief:

  • Global growth: We expect the global economy to recover as we head into 2021. It's likely that an effective combination of vaccine and therapeutic treatments will allow an easing of government restrictions on social interaction and a lessening of consumers' economic hesitancy in 2021. But the recovery's path is likely to prove uneven and varied across industries and countries. It will be some time before many economies return to their pre-COVID levels of employment and output.
  • Inflation: We maintain our long-held assessment that inflation rates persistently above 3% are difficult to generate across many developed markets. We anticipate a cyclical bounce in consumer inflation in 2021, yet concerns about resurgent inflation are premature and unlikely to materialize. High fiscal spending has the potential to influence inflation psychology, but any such influence would have to more than counteract high levels of unemployment as well as important structural deflationary forces.
  • The financial markets: Our projections continue to reveal a global equity market that is neither grossly overvalued nor likely to produce outsized returns going forward. There may be opportunities for those who invest broadly around the world and across the value spectrum. Given the outlook for continued low interest rates and government bond yields, we find it hard to see a material uptick in fixed income returns in the foreseeable future, but high-quality bonds will remain a key portfolio diversifier.

Learn more about our views on the global economic outlook, inflation, monetary policy, and the implications for investors in the Vanguard Economic and Market Outlook for 2021: Approaching the Dawn.

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