Orderly Global Reflation Will Support The Recovery From COVID-19, Article Says
S&P Global Ratings announced on March 22, 2021, a positive outlook for the global economic recovery, driven by favorable fiscal policies and vaccination efforts. The report suggests that rising U.S. Treasury yields indicate confidence in a sustained recovery. While concerns over inflation persist, S&P believes fears are exaggerated and forecasts orderly reflation will support sustainable growth. Risks include potential volatility in credit markets, particularly affecting lower-rated corporate entities and emerging markets.
- Global economic recovery gaining momentum due to fiscal and monetary policies.
- Increasing U.S. Treasury yields signal confidence in market recovery.
- S&P predicts orderly reflation to support sustainable growth.
- Concerns over inflation could lead to volatility in credit markets.
- Lower-rated corporate entities and some emerging markets may face challenges.
NEW YORK, March 22, 2021 /PRNewswire/ -- (S&P Global Ratings) -- The global economic recovery is gaining steam--powered by accommodative fiscal and monetary policy stances and accelerating vaccinations. And the recent rise in U.S. Treasury yields, and its spillover into corporate bond yields, indicates greater confidence in a sustained recovery, including a normalization in market functioning and risk pricing. However, the exit path from a very unusual cycle has the potential to be uncertain and volatile for credit markets, and recent discussions have focused on the risk of rising inflation.
Fears that overaggressive fiscal policies could stoke a return of too high inflation have pushed bond yields higher and led central banks to clarify their (for now, dovish) reaction functions. In our view, these discussions confuse the risk of reflation fueled by a solid recovery, which is broadly positive, with the risk of a disorderly rise in inflation and yields, which is broadly negative. These fears are most pronounced in the U.S. but could spread as the recovery gains traction.
We think inflation fears are overblown and that orderly reflation, around a return to sustainable growth, is a healthy development for both macro and credit development, said S&P Global Ratings today in its article "Orderly Global Reflation Will Support The Recovery From COVID-19."
Risks relate to a rapid and volatile reset in risk premium or durably elevated inflation--which would hurt, in particular, corporate entities at the lower end of the rating scale and in some emerging markets.
This report does not constitute a rating action.
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SOURCE S&P Global Ratings
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