September Economic Update: V for virus, vaccine, and a V-shaped recovery?

• Three new scenarios for the global recovery’s next phase

With the economic rebound from Covid-19 now in full swing, we look at what could be a turbulent path to full recovery. Our new-look scenarios map out potential paths for the global economy depending on how the virus spreads over the winter, and how quickly a vaccine is certified and rolled out to the wider population

• US: The surge subsides

High-frequency data suggests that the post-reopening surge in activity began to moderate in July and this process continued throughout August. With the pandemic continuing to create many challenges, we doubt the economy will fully heal before 2022

• US Politics: Biden’s to lose?

Opinion polls suggest Joe Biden has a commanding lead over President Donald Trump, but with two months to go, there are plenty of things that could change that situation. Whoever wins, the battle for the House and Senate will be critical to determining how many of their respective promises can be delivered

• Eurozone: The rebound continues… for now

The eurozone is still on track to see a very strong third-quarter growth figure. However, recent indicators signal some deceleration. Meanwhile, inflation is undershooting expectations paving the way for an extension to the Pandemic Emergency Purchase Programme

• Eurozone: Short-time work provides cushion to double dip worries

Worries about a double-dip recession are increasing in the eurozone as disappointing survey data for August provides a reality check on the pace of recovery. Government support offers a significant tailwind for the economy though. While a double-dip is not unthinkable, it looks like growth can still continue albeit at a slower pace in the coming months.

• UK: What Brexit means for the economy in 2021

We think it's unrealistic to expect a sudden plunge in GDP once the transition period ends. But whether there's a deal or not, the change in UK-EU trade terms will push costs up for businesses in a range of sectors, potentially compounding the Covid-19 hit. That leaves the UK at risk of a slower and more turbulent recovery relative to its peers

• Central and Eastern Europe: No deflationary threat here

Growth in the CEE region is picking up in line with the eurozone, but in contrast, inflation remains above target. Central banks are unlikely to respond as they focus on the fragile post Covid-19 recovery, while local CPIs are set to fall. CEE FX has been benefiting from rising EUR/USD and should continue to do so.

• China: Revising GDP and yuan forecasts

China’s recovery has started and looks sustainable because domestic demand has returned amid fewer Covid-19 cases. This leads us to revise our GDP forecast up to 2.5% YoY and yuan forecasts upward to 6.70, but the technology war is still the biggest risk to the economy

• Asia (ex. China): Slow recovery

Shinzo Abe's resignation as Japan's Prime Minister has grabbed the headlines this month. Elsewhere, recovery continues across the region, with North Asia outpacing the rest

• FX: The dollar bear trend: It’s only just begun

US fiscal policy paralysis and a change in monetary policy strategy from the Federal Reserve make the case for the dollar bear trend extending well into next year. We revise up our end 2021 EUR/USD forecast to 1.25

• Rates: Why we want a steeper curve

We think the US yield curve can steepen further. We also hope it does. A steeper curve gels with a reflation theme and has wider benefits. It can lift Europe, and beyond. The Fed's move to average inflation targeting helps, but guarantees nothing. The curve is smart though; this time last year it was inverted, discounting a recession - we got one. Where next?