BlackRock Investment Institute

Macro insights

Fiscal support remains key as monetary space limited

News on Covid vaccines strengthens the argument to ease monetary policy again, as policy support is more clearly building a bridge to a post-Covid world. Our financial conditions indicator shows how key developed market central banks have kept financial conditions as easy as they were before the Covid shock. The ECB is expected to ease further by boosting – and possibly extending – its Pandemic Emergency Purchase Programme this week.

U.S. and euro area financial conditions indicators, 2018-2020

Sources: BlackRock Investment Institute and Bloomberg, December 2020. Notes: The lines show the BlackRock Financial Conditions Indicators (FCIs) for the U.S. and euro area, shown in terms of the consensus pace of growth implied by movements in domestic financial conditions.

Yet monetary policy space is limited, with interest rates near effective lower bounds. This leaves fiscal policy as the main tool to bridge lost income until global activity recovers. The risks around a fiscal extension in the U.S. are significant, given the lack of agreement to extend key measures such as enhanced unemployment insurance. In Europe, negotiations around the recovery fund and multi-year EU budget are being stalled by Poland and Hungary. Yet eventually an agreement is still more likely than not, in our view, lending important momentum to fiscal support through next year and beyond.

Recent macro insights

Manufacturers to slow production
Manufacturers have slowed production substantially in both the U.S. and the euro area, according to survey data.
Financial conditions tightening fast
U.S. financial conditions have tightened a lot since the start of the year – in other words, financing is becoming more costly for individuals and companies. Since then, th...
Less optimism on growth
Economic growth forecasts for this year and the next are coming down rapidly. The OECD last week followed the World Bank in downgrading growth forecasts.

Stay ahead of markets with the latest insights from the BlackRock Investment Institute.

Please try again
First Name *
Please enter a valid first name
Last Name *
Please enter a valid last name
Email *
Please enter a valid email
Investor type *
This field is mandatory
Location *
This field is mandatory
Company *
This field is mandatory
Thank you
Thank you for your subscription!
We usually publish weekly insights on every Monday. Expect to receive your first newsletter from us this upcoming Monday.