EC Is Today’s Bull Market Sustainable?

Meanwhile, the lockdowns in the U.S. were never as strict as in Europe. Coupled with massive fiscal stimulus boosting demand, this buoyed the U.S. into a top performer globally. Canada also benefited from its own fiscal stimulus, the strength of the U.S. recovery, as well as a booming housing market. Finally, the Australian economy, remarkably, is above its pre-pandemic level. Like EM, Australia was able to limit the virus outbreak within its border by shutting the continent to international travel. The nation also benefited from its close trade linkages with China – which was the first nation to enter the crisis and exit. The bottom line is that while the recovery speed has varied, the global economy is clearly on the mend.

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Source: Refinitiv DataStream, Russell Investments. EM and Global GDP data based on Oxford Economics estimated growth as of 3Q 2020.

Growth outlook for the rest of 2021: Could Europe outpace the U.S.?

While the chart above provides a perspective on the recovery so far, the chart below presents a perspective on the outlook (with some historical context). According to the International Monetary Fund (IMF), the global economy in 2020 experienced its first annual economic contraction since the GFC—and a much deeper one at that. For example, the chart below shows that the world economy barely contracted in 2009, versus a 3.3% contraction in 2020. Similarly, both the U.S. and eurozone area experienced a deeper recession in 2020, with high-growth EM contracting by 2.2%, compared with a 2.8% expansion during the GFC.

All that said, the pandemic downturn will likely be one of the shortest recessions in history, as the global economy transitioned quickly from recession to recovery, as previously discussed. Moreover, due to the boost in demand from historic fiscal and monetary policies, the projected GDP growth in 2021 and 2022 for all regions is above respective long-term averages.

Importantly, we believe that the next phase of the reopening/recovery favors regions outside the U.S. Why? Take Europe, for example. For most of this year, Europe’s consumer spending has been limited due to restrictive lockdowns. These restrictions are now easing as more individuals are vaccinated. This potentially sets up an unleashing of pent-up demand, which we believe will improve the growth outlook for the broader European economy over the second half of 2021 and beyond. Further to that point, the IMF expects that GDP growth in Europe will exceed that of the U.S. in 2022.

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Source: International Monetary Fund (IMF) April 2021 World Economic Outlook, Russell Investments.

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Disclosures

These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions ...

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