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Financial markets began the year on a positive note. The progress made in vaccinations, central bank support and the fiscal stimulus programs planned for Europe and the US, helped drive expectations of an economic recovery.
Last week the ECB held its first meeting since announcing its Strategy review of monetary policy a few days ago, in which it faced the dual challenge of nailing down future strategy and taking decisions on existing policies.
After having seemingly vanished as a source of concern for many years, the fear of inflation has re-emerged, along with the first green shoots of recovery.
The economy could experience a period of bonanza not seen in decades. Strong recovery boosted by successful vaccination campaign, reopening of services, low interest rates, and massive fiscal stimulus. Flat Phillips curve and elevated slack limit inflationary pressures.
Despite the negative news stories related to the difficulties surrounding vaccine approvals, the third and fourth waves of the pandemic, and the sense of fatigue we are feeling as a society, the global economic landscape is actually improving.
The first quarter has seen much more doubt surrounding the economy in Europe than America. The latest wave of the pandemic is severely impacting the largest countries in the area. The situation will improve though, with the acceleration of vaccination drives and the knock-on effect of increased growth in the United States.
The increase in long-term interest rates has generated some anxiety in the markets, but this should not pose a threat to global growth.
Climate change is multidimensional, with a range of economic risks coming via different channels, both physical and financial, and could ultimately affect the stability of banking systems. It is therefore natural to ask whether central banks should be reassessing their activities and objectives.