Moderately higher inflation in response to bigger debt levels – UBS
|The world will emerge from COVID with considerably higher levels of debt while will be left structurally less global by the crisis, spurring on the de-globalization trend, according to economists at UBS.
Key quotes
“We expect government debt as a percentage of GDP to be about 15-25 percentage points higher at the end of 2021 than it was at the end of 2019.”
“Interest rates have little room to go lower, which limits the potential for high-quality bonds to provide significant positive returns in the event of an equity market downturn.”
“Central banks may be prepared to tolerate a rate of inflation somewhat above the 2% target rate for a year or two. Inflation between 2% and 5%, if not for too long, would likely not add to inflation uncertainty risk, and could help modestly reduce debt burdens.”
“Governments are likely to view more goods as being strategically important, and so encourage more domestic production. Meanwhile, companies have become more aware of the operational risks posed by long global supply chains. Bringing production closer to the end market is likely to become a more common response.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.