Perspectives

Growing certainty that there will be less uncertainty

nd  
Eco Perspectives // 2 Quarter 2021  
economic-research.bnpparibas.com  
2
EDITORIAL  
GROWING CERTAINTY THAT THERE WILL BE LESS UNCERTAINTY  
In many countries the number of new Covid-19 cases has begun rising again, forcing governments to maintain or  
tighten health restrictions. This is the case for the Eurozone, among others, where a true rebound in growth and  
demand has been postponed yet again. The timing of the recovery will depend essentially on the effectiveness of  
restrictive measures and the acceleration of vaccination campaigns, but also on spillovers effects with some of its  
trading partners whose economies are picking up more rapidly. The United States is one such country thanks to its  
successful vaccination campaign and the enormous recovery plan that has just been launched. America’s influence  
is not limited to providing greater opportunities for European exporters. The upturn in US bond yields has partially  
carried over to long-term rates in the Eurozone, pushing them higher. This trend largely reflects higher inflation  
expectations, although the Federal Reserve is convinced that the surge in inflation will be short-lived. Companies and  
households should welcome the bond markets’ jitters, which clearly signal the sentiment that the economy really is  
improving.  
In late 2020, there were high hopes that the health crisis would soon  
improve and that economic activity would rebound in its wake. In many  
countries and regions around the world, the actual situation was a  
big disappointment as the number of new Covid-19 cases began rising  
US : TOTAL NON-FARM EMPLOYMENT  
Recession  
All Employees, Total Nonfarm, Thousands of Persons  
again, forcing governments to maintain or tighten health restrictions.  
The Eurozone is a case in point. Although Q1 GDP growth is expected  
to be positive on a quarterly basis, it is mainly due to the growth pick-  
up in the latter part of the fourth quarter of 2020. A real rebound in  
economic growth and demand has been postponed again, and its  
timing will depend mainly on the effectiveness of restrictive measures  
and the acceleration of vaccination campaigns.  
1
55000  
50000  
45000  
140000  
35000  
1
1
1
DESYNCHRONIZATION IN THE REAL SPHERE  
Another source of hope that will play a non-negligible role is the  
spillover effect of certain trading partners like the United States,  
but also China and the UK, which has already begun to ease health  
restrictions. In the US, high hopes for a successful rollout of vaccination  
campaigns earlier this year were largely surpassed. Economic growth  
was already beginning to recover, and will now receive another  
immense stimulus through the USD 1.9 trillion recovery plan. Although  
many disagreed with the size of the package, there was clearly a need  
for fiscal support, given the enormous gap between the number of  
Americans who managed to preserve their job or find a new one and  
130000  
125000  
2
007  
2009  
2011  
2013  
2015  
2017  
2019  
2021  
CHART 1  
SOURCE: FEDERAL RESERVE BANK OF ST. LOUIS, BNP PARIBAS  
SYNCHRONISATION IN THE FINANCIAL SPHERE  
pre-pandemic employment levels. The longer it takes to close the gap Naturally, the bond markets have not been indifferent to these  
created by job destructions, the greater the risk that the pandemic developments. In the United States, 10-year Treasury yields have  
will have hysteresis effects that leave a lasting negative impact. In continued to rise, building on a trend that started last summer. Initially  
the months ahead, Congress will begin debating a new plan that they reflected the higher inflation expectations of investors, although  
primarily targets the supply-side of the economy, including investment more recently, real rates have risen, buoyed by the US recovery plan.  
in infrastructure, the digital world, and innovation, with a bent towards As usual, this momentum carried over to bond yields in other countries,  
preparing for climate change.  
including those of the Eurozone. As a result, the ECB had to accelerate  
the pace of its sovereign bond purchases to avoid a tightening of  
financing conditions, which would have been particularly unwelcome.  
The Federal Reserve remains stoic in the face of the bond markets’  
behaviour, although it admits that inflation will rise in the second half.  
There are several arguments: corporate surveys are already showing  
a net increase in input prices, and a strong acceleration in growth will  
inevitably lead to a supply and demand imbalance, since supply chains  
still bear the scars of last year’s disruptions and, at least in the short  
run, will not be able to keep up the pace. Even so, the Fed considers  
that the surge in inflation will be short-lived. Supply will adapt and  
inflation expectations seem to be well anchored. This is a crucial factor  
for wage negotiations and price setting trends. The months ahead risk  
being caught in a tug of war between the bond markets and the Federal  
The Eurozone will benefit from the desynchronization of economic  
momentum with the United States. In economic surveys, companies  
are already expressing optimism about exports. This is especially true  
for Germany. The strong rise in the March surveys is also striking. The  
European Commission’s economic sentiment survey is now very slightly  
higher than its long-term average, buoyed by brighter sentiment in  
several sectors (industry, services, retailing and construction) as well  
as among households. April’s figures are unlikely to be as strong due to  
the introduction of new health restrictions, but the recent momentum  
in the surveys suggests that companies and households alike are  
increasingly seeing the glass as half full. There is growing certainty  
that uncertainty will decline. After all, the restrictive health measures  
and vaccination campaigns will eventually pay off.  
The bank  
for a changing  
world  
nd  
Eco Perspectives // 2 Quarter 2021  
economic-research.bnpparibas.com  
3
Reserve. The Fed’s communication policy will have to strike a very fine  
line to avoid throwing more oil on the fire. Companies and households  
should welcome the bond market’s jitters, which clearly signal the  
sentiment that the economy really is improving.  
BREAK-EVEN INFLATION IN THE US AND IN GERMANY  
10-Year German Breakeven Inflation Rate  
2
.5  
10-Year US Breakeven Inflation Rate  
William De Vijlder  
william.devijlder@bnpparibas.com  
2
1.5  
1
0.5  
0
2
015  
2016  
2017  
2018  
2019  
2020  
2021  
CHART 2  
SOURCE: BLOOMBERG, BNP PARIBAS  
The bank  
for a changing  
world  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
Ce site présente leurs analyses.
Le site contient 2732 articles et 723 vidéos