Global recovery gets bumpy

Going forward, a strong economic recovery will largely depend on vaccine distribution — and some countries are faring better on that front than others. Still, despite the divergence, CIBC’s chief investment strategist says his outlook for growth and inflation this year remains positive.

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“We’ve assumed that the vaccine would help lower the number of cases [and] reopen the economies quite quickly,” leading to strong growth, said Luc de la Durantaye, chief investment strategist and chief investment officer with CIBC Asset Management, in an interview earlier this month.

Among major world economies, the U.K. and U.S. are leading the charge, with about 49% and 41% of their respective populations receiving at least one dose of a Covid-19 vaccine.

Regarding the pandemic’s third wave, “There’s less concern from a U.S. perspective because vaccination is ramping up quite rapidly, and inoculation has increased,” de la Durantaye said.

He also noted improvement in Europe: “We’re starting to see the cases rolling over in Europe following the introduction of lockdowns,” de la Durantaye said. “We’re seeing a peaking in this third wave already and [a] reversing at a moderate level.”

That region’s vaccination rate is also on the rise.

“It’s actually going to quadruple from the end of March to the end of June,” de la Durantaye said. “A number of specialists are predicting that Europe will be able to have vaccinated 50% of its population by early July.”

That estimate holds despite shortfalls in vaccine delivery, specifically regarding the AstraZeneca vaccine, he said. Eurozone vaccination is currently at about 20% of the population.

Recent upgrades in economic growth align with current vaccine rollouts.

In its latest report published earlier this month, the International Monetary Fund (IMF) raised its growth forecasts most significantly for the U.S. and the U.K., up 1.3 percentage points to 6.4% and up almost one percentage point to 5.3%, respectively.

IMF growth upgrades were more modest for other regions, especially for the eurozone and emerging markets.

Economic upgrades have since continued. In a report on Friday, Desjardins economists raised their 2021 GDP growth expectations for the U.S. to 7%, “thanks to the vaccination campaign’s solid performance,” the report said.

The Desjardins report also noted Canada’s economic resilience despite severe lockdowns in some areas. While the third wave of Covid-19 “has shaken” the country’s short-term economic growth profile, “annual averages forecast for real GDP for Canada, Quebec and Ontario are almost unchanged,” the report said.

About 29% of Canada’s population has received at least one dose of a Covid-19 vaccine.

Divergence in vaccination and economic prospects globally has filtered into earnings-per-share (EPS) growth expectations.

Consensus EPS growth forecasts for this year have risen over the last three months for the U.S. and U.K., as well as in Asia Pacific (excluding Japan), said a FTSE Russell April equities report (excerpted in a blog post).

EPS growth for the Russell 1000, for example, was upgraded by 4% to 24.5%; the FTSE U.K by 4.5% to 52%; and the FTSE Asia Pacific ex. Japan almost 12% to about 42%.

Cyclically sensitive sectors, notably basic materials and industrials, dominated the upgrades, that report said, though tech and health care also saw upward revisions.

Over the same period, EPS growth forecasts have decreased for the eurozone and emerging markets — estimates for 2022 also have small downgrades across all regions.

Speaking broadly, de la Durantaye said his firm would continue to assess the rate of vaccine distribution around the world.

“That’s certainly one element that needs to be monitored over the next one quarter or two quarters — to make sure that the total vaccination efforts continue to ramp up,” he said.

As things stand, “we’re still within the realm of our scenario that sees stronger growth and inflationary pressure in the second half of this year,” he added.

Inflationary pressure may not have a lasting impact, however.

Forward-looking forecasts for consumer prices are largely aligned with long-term averages in most of the world’s large economies, the FTSE Russell report said.

That report added, “This reinforces the view (most notably reiterated by the Fed) that the anticipated pickup in inflation this year is likely to prove transitory, reflecting short-lived supply disruptions and base effects from last year’s deflationary shock.”

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