Danske Bank lifts growth forecasts for US, China & Japan; cuts Eurozone

In a recent research note, analysts at Danske Bank have raised their growth outlook for US, China, and Japan while lowering their forecast for the Eurozone. Nevertheless, all are still above the Bloomberg consensus on account of stronger fiscal stimulus in the US and stronger-than-expected manufacturing sector performance globally.

Covid Picture
As identified by Danske analysts, the global Covid picture is mixed with recovery set to be uneven across the globe. In the US, cases are generally trending lower and the speed of the vaccine rollout has been impressive compared to Europe.

In Europe, cases have begun rising again, prompting countries to introduce new lockdown measures. Germany has imposed new measures over Easter to curb the spread of infections while various regions of France and Italy have also introduced strict lockdowns in the last week.

Separately, the pace of the vaccine rollout has been slow compared to the US & UK and the recent troubles with the AstraZeneca (NASDAQ:AZN) vaccine could slow the pace even further as residents lose confidence in the safety. A recent YouGov survey found that more than half of people surveyed in France, Germany and Spain believe the Oxford/AstraZeneca jab is unsafe.

In emerging markets, cases and hospitalisations in Brazil and India have been increasing and the vaccine programme is markedly slower.

Turning Point?
Analysts at Danske Bank see a turning point in April as the weather in the Northern Hemisphere gets warmer and spread of contagious diseases – like flu – usually begins to fall.

“Last year we also saw contagion of COVID-19 start falling to a low level from mid-April and through the summer in Europe,” Danske Bank says. “As more of the vulnerable groups will have received the vaccine by then, the economies should be able to ease restrictions.”

Growth Divergence
Danske Bank expects the US economy to significantly outpace growth in both the Eurozone and Japan in 2021 due to a more forceful policy support and the faster rollout of Covid-19 vaccinations. As such they have raised their growth forecast for the US to 7.5% in 2021 from 3.3% previously.

In the Eurozone, Danske has actually revised down its expectations for 2021 growth and now sees the bloc growing 4.4% this year vs. previous forecast of 4.9%, citing more stringent containment measures in H1 than were previously anticipated.

Fed impact
“The faster recovery of the US economy to full capacity vs. the euro area and Japan is also reflected in a faster pick-up in underlying inflation pressures,” Danske says. “We expect the Fed will allow inflation to move higher without offsetting by tightening monetary policy prematurely (expecting tapering only to begin in early 2022).”

One risk to the bank’s outlook would be a stronger rise in inflation that pushes the central banks to tighten policy faster than might be currently expected.