Vaccine deployment is beginning to allow pent-up demand in service industries to materialise, but with notable differences across countries and sectors.

The recent increase in the number of COVID-19 cases may be partially explained by higher global mobility, as some policymakers are prepared to loosen restrictions as long as cases remain reasonably contained.

Aside from the speed of reopening of economies, the greatest uncertainty is around how household spending will respond in 2021: will they keep saving or will they spend the substantial excess savings built-up in 2020?

My guess is that these excess savings will not be spent quickly: most savings have been accrued by higher earners (who have lower propensity to consume), and lower income households might prefer to pay back debt or improve their balance sheet.

Still, the second half of 2021 should see bumper growth in consumer spending.

In the last few months, we have seen government bond yields rising to pre-pandemic levels in the US. While higher rates are to be expected, the speed of the tightening is something to monitor. For economies with high debt levels and a lack of fiscal space, a tightening in financial conditions would slow down their recoveries and complicate things for policymakers (especially as the global economy progresses toward the next phase of the recovery: the transition to autonomous growth).

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