Quarterly Newsletter - Summer 2021

No ordinary cycle

The unusually strong response by public authorities has helped economies preserve past gains, emerge from the pandemic and launch a recovery. “The unprecedented protective policy net that governments deployed has preserved the economic fabric, firms and jobs in most advanced and some emerging-market economies. Never in a crisis has policy support—be it health, with the record speed of vaccine development, monetary, fiscal or financial—been so swift and effective.” (OECD)

At the current pace, the economic fallout from the pandemic in industrialized countries may be relatively limited by the end of the year. According to the OECD, many industrialized countries may see their GDP return to pre-pandemic levels by 2022.

North Asia, the US and Canada will act as a conduit for the global economy over the next 12 to 18 months. The reopening of economies, the recovery of the service sector, the momentum of global trade and manufacturing, and more hours worked, investment and household spending could drive economic activity even more.

But many risks remain. COVID-19 and its variants are the 2 main risks in this scenario. Despite the good news on the vaccination front, the pandemic is not over. Even though we know how to end the pandemic, a new wave could lead to a seesaw recovery.

Other risk factors, including China’s economic outlook, inflation and normalization of public policies, will attract attention in the short and medium term.

Inflation is all over the news. In May, annualized inflation hit 5% in the United States, its highest level since August 2008. But we believe this spike is temporary and will subside over the coming months.

 

This means the Bank of Canada should be able to keep its key interest rate steady for several months to come. By December, the Fed should have seen enough improvement in the job market to announce it will pull back on quantitative easing starting in January.

 

Things to watch for as the economy recovers:

  • Strong job growth and upward revisions
  • Regulation of certain sectors in China
  • The labour and raw materials shortage
  • The economic impact of the Delta variant

 

Despite the unusual circumstances, including the ongoing pandemic, the eventual end to emergency measures and some investor complacency, we remain modestly optimistic. But we’ll need to take advantage of some short-term downward fluctuations to rev up investment portfolios.

Each Desjardins Securities advisor named on the front page of this document, or at the beginning of any subsection hereof, hereby certifies that the recommendations and opinions expressed herein accurately reflect such advisor’s personal views about the company and securities that are the subject of this publication and all other companies and securities mentioned in this publication that are covered by such advisor. Desjardins Securities may have previously published other opinions, including ones contrary to those expressed herein. Such opinions reflect the different points of view, assumptions and analysis methods of the advisors who authored them. Before making an investment decision on the basis of any recommendation made in this document, the recipient should consider whether such recommendation is appropriate, given the recipient’s particular investment needs, objectives and financial circumstances.

Author :

Martin Archambault | BBA, CIM®

Portfolio Manager, Senior Wealth Manager

514-985-4265 ext 5064265

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