ECONOMY:

During the third quarter, many world economies have been recovering. The growth was supported by three major factors – the release of the social distancing measures (economy re-opening), expansive fiscal policy (fiscal deficits, government supported spending programs) and the unprecedented monetary policy easing (quantitative easing – purchases of not only government bonds financing fiscal deficits).

The numbers of those infected by Covid-19 started to increase again during the last two months and with the implementation of new social distancing measures, the prospect for a quick recovery started to diminish. As a result - GDP growth forecasts are being cut for 2020 and 2021 again. However, this time, industry seems to be less effected (compared to the spring of 2020) than the sector of services.

The announcement of new vaccines (Pfizer, Moderna) is definitively positive news in the long run, but as the implementation of the vaccine will take a long time, the impact on the economy in the near future will be limited. In the period of higher uncertainty, the financial markets corrected the previous positive development, but after the US elections and new vaccine announcement, the prices of risk assets started to quickly grow again, in many cases prices have reached their historical highs.

The fiscal and monetary (quantitative easing) policies are expansionary and there is no evidence that they should be cut anytime soon. The key questions for the further economic and financial market development - how quick and effective will the vaccination process be and how distracted can the development of the real economy and prices on the financial markets be. In the long run the key question is the path of fiscal consolidation and monetary policy normalization.

For more information please read the attached newsletter.