Inflation Returns Scenarios
Slow vaccine roll-out: Supply bottlenecks delay exit from restrictions. Withdrawal of social distancing measures is slowed as logistical issues and vaccine hesitancy delay the return to normal.
Limited vaccine effectiveness: New virus variants mean persistent restrictions. Restrictions remain in place for a protracted period as existing vaccines prove less effective against new, more transmissible coronavirus variants.
Return of inflation: Taper tantrum amid expected policy tightening. A deteriorating outlook for inflation is met with a sharp and sustained rise in bond yields.
Rapid upturn: Vaccine roll-out achieves early easing of social distancing. Longer-term economic scars are avoided as the successful roll-out of vaccine programmes and additional fiscal stimulus cement recovery.
In our February 2021 baseline forecast, subdued global growth in the early part of the year is followed by a marked acceleration in activity from Q2 as restrictions begin to ease. Our baseline forecast sees world GDP expanding by 5.6% in 2021, compared with 4.9% in the previous report.
The first key difference between our scenarios relates to the assumed spread of the virus and associated public health measures. We explore the possibility of only a gradual removal of health restrictions during 2021 (Slow vaccine roll-out) or, more negatively, tighter restrictions that remain in place for a protracted period (Limited vaccine effectiveness). We also examine a more rapid return to normal (Rapid upturn).