As we pass the mid-way point of 2021, it makes sense to reflect upon the global economic recovery from the pandemic, the potential implications for credit markets and the future path of the credit cycle. Simply put, the global recession recovery from the COVID-19 pandemic will likely have very few similarities to the recovery from the global financial crisis (GFC) of 2008/2009.
The post-GFC period was defined by sovereign fiscal austerity, low investment, a deleveraging consumer and central banks acting pre-emptively to limit inflationary risk. The current situation is strikingly different; global fiscal policy remains exceptionally expansionary, consumers in the US, Europe and Asia continue to exhibit a strong credit profile with record levels of savings, and public and private sector investment is increasing. Compared to the post-GFC period, the global direction of fiscal policy has shifted from austerity-focused to fiscal activism, as the global fiscal response to this recession is already the largest since the Second World War.1 All the while, global interest rates remain near historical lows. Easy fiscal and monetary policy combined with strong consumer health and growing investment create a powerful concoction for global economic growth.