2021 was a strong year for risk assets with a number of markets closing at or near all-time highs. Global equities returned over 20% and the US almost 30%. While the UK (+19%) lagged, the most significant outliers were Asia and emerging markets where a 7% appreciation in the dollar proved challenging. Sterling closed 1% lower at $1.35. Central banks continued their monetary and fiscal support measures enabling economic activity to rebound towards the underlying growth trend. However, there was a marked contrast between goods and services and increased demand for goods, combined with supply chain disruptions, resulted in a sharp rise in inflation towards the year-end. While vaccine availability helped limit COVID mortality, new strains and recurrent waves of infection accompanied by movement restrictions impacted services - particularly hospitality and travel.
Global GDP rose 5.7% after the previous year’s 3.5% fall
Advanced economies grew 5.2% and emerging economies 6.4% boosted by growth of almost 8% in China, albeit this had slowed by Q4. Low-income developing countries lagged significantly reflecting a lack of access to vaccines and limited policy support. The US (+6%) was a major global contributor with output above pre-pandemic levels. Although the UK (+6.8%) exceeded the US, the economy was recovering from a near 10% downturn in 2020 and output was still lower than pre-pandemic. This was also the case in Europe and Japan where GDP rose 5% and 2.4% respectively. The growth rate in Germany was a relative laggard within the Eurozone partly reflecting the economy’s less severe downturn in 2020.