The economic recovery from the COVID-19 epidemic has been rapid and impressive. This video outlines our views on the global economy and how they have changed since the beginning of 2021.
Learn more about our economic and market outlook in middle age.
In our 2021 economic and market outlook, Vanguard discusses the critical nature of COVID-19 health outcomes. We assumed that an effective vaccine would emerge, but we insisted that the recovery would vary across industries and regions.
The economic recovery has been rapid and impressive, as we have predicted, especially where the vaccine has reached most people.
Our revised full-year GDP growth forecast reflects how far we have come back from the depths of the epidemic. There have been a number of upgrades since the beginning of 2021, and a few downgrades, reflecting the challenges ahead and the potential outcomes.
Demand for this specialty has grown significantly as a result of recent corporate scandals. The supply deficit has helped push up prices.
We are predicting sustained inflation above the Federal Reserve’s target this year in the United States and moving toward targets in other developed markets. Inflation will be an important issue by 2022.
Although central banks may slow the pace of their asset purchases faster than originally expected – gradually moving away from monetary policy – we believe it will be 2023 before the dynamics of the labor market and inflation lead their policy to raise interest rates.
The low rate helped keep the economy afloat at the start of the epidemic. Now they support strong recovery.
And what about our market outlook? Our 10-year annualized equity return estimate is lower at the beginning of the year after recent strong market gains. Today’s high valuation makes it difficult to make further gains.
The news is even better for fixed-income investors, as high market interest rates greatly boost our expectations for a 10-year return.
Look to Vanguard for insights into long-term market and economic trends.
All investments are at risk, including the potential loss of money you invest. Diversification does not guarantee a profit or protect against losses in a falling market. There is no guarantee that any specific asset allocation or combination of funds will meet your investment objectives or give you a certain income level.
International investment is subject to additional risk, including the possibility of a loss of foreign exchange or a loss of return as a result of adverse development in a particular country or region.
Bond funds are subject to the risk that an issuer will fail to pay on time and the price of the bond will fall because of an increase in interest rates or a negative perception of the issuer’s ability to pay.
About the Vanguard Capital Market Model:
Important: Estimates and other information produced by the Vanguard Capital Markets model about the probability of different investment outcomes are speculative in nature, do not reflect actual investment results and do not guarantee future outcomes. VCMM results will vary with each use and time.
VCMM estimates are based on a statistical analysis of historical data. Future income may behave differently from the historical patterns contained in the VCMM. More importantly, VCMM can underestimate the unselected extreme negative situations in the extreme historical period on which the model is based on assumptions.
Vanguard Capital Markets Model: A proprietary financial simulation tool developed and maintained by Vanguard Investment Strategy Group. The model predicts future income distribution for a wide array of broad asset classes. This asset class includes the U.S. and international equity markets, several maturities of the U.S. Treasury and the corporate fixed income market, the international fixed income market, the U.S. money market, commodities and specific alternative investment strategies. The theoretical and empirical basis for the Vanguard Capital Markets model is that the returns of different asset classes reflect the compensation required by investors to bear different types of systematic risk (beta). The core of the model includes estimates of the dynamic statistical relationship between risk factors and asset returns, derived from statistical analysis based on available monthly financial and economic data. Using a method of approximate equations, the model then applies the Monte Carlo simulation method to highlight the estimated inevitability and over time uncertainty and chaos between risk factors and asset classes. The model often generates a large set of simulated results for each asset class on the horizon. In this simulation the prediction is obtained by calculating the measure of the central tendency. The results produced by the tool will vary with each use and time.
“Update in the midst of our 2021 economic outlook”,