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Led by the United States and China, the global economy appears to be set for a significant acceleration, write Guy Wagner, Chief Investment Officer at BLI - Banque de Luxembourg Investments, and his team, in their monthly analysis, ‘Highlights’.

High level of public stimulus in the US

In the US, particularly harsh winter weather in several States and the expiry of the second wave of stimulus cheques weighed on domestic consumption and business investment in February. But this is likely to change in March with the launch of the third wave of household support which should boost consumer spending.

Economic indicators in Europe surprisingly robust

“In Europe, most activity indicators are surprisingly robust despite the slow progress of the COVID-19 vaccination campaign,” says Guy Wagner, Chief Investment Officer and managing director of the asset management company BLI - Banque de Luxembourg Investments. “There remains a significant divergence between the thriving industrial sector and services activities, which have been heavily impacted by social-distancing measures.” In China, the very high first-quarter growth figures can be explained by favourable base effects, somewhat eclipsing the recent moderation in activity caused by a reduction in travel during the traditionally busy Chinese New Year period. “Nevertheless, provided no major shock occurs, the official target of GDP growth above 6% for full-year 2021 looks rather conservative,” thinks the Luxembourgish economist. In Japan, the revitalisation of world trade should have favourable repercussions on economic growth as it is heavily dependent on exports.

Central banks maintain their highly expansionary monetary policy

The strategy of maintaining a highly expansionary monetary policy despite the prospects for economic recovery was confirmed by the monetary authorities on both sides of the Atlantic in March. In the US, Federal Reserve Chair Jerome Powell stressed the fact that he would not react to a temporary rise in inflation to avoid jeopardising medium-term employment and inflation targets. Contemplating a possible slowdown in asset purchases at this stage would, he thinks, be premature and the markets would be informed in advance. The Fed Chair nevertheless refrained from mentioning measures to curb the recent rise in long-term interest rates. In Europe, ECB President Christine Lagarde announced that asset purchases under the emergency pandemic programme would be stepped up, but the total envelope was left unchanged at €1,850 billion.

Equity markets rise sharply

Equity markets rose sharply in March, closing the first quarter with notable gains. “Hopes of a gradual opening of economies, government support programmes, and the central banks' commitment to avoid premature tightening are pushing stock markets to record highs.” The MSCI All Country World Index Net Total Return expressed in euros gained 6.0% last month, for a year-to-date rise of 8.9%. Guy Wagner: “Defensive sectors recovered from their significant weakness in February, with utilities and consumer staples being the month’s winners. However, the leader board since the start of the year is dominated by energy, financials and industrials, while healthcare, utilities and consumer staples continue to lag.”

Guy Wagner, Managing Director

An economics graduate from the Université Libre de Bruxelles, Guy joined Banque de Luxembourg in 1986 where he was head of the Financial Analysis and Asset Management departments. He was appointed Managing Director of BLI – Banque de Luxembourg Investments in 2005.

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