We approach 2021 with a sense of relief that one of the most difficult years most of us have ever experienced is over. The major vaccine breakthroughs in November and December have lowered uncertainty and raised hopes that life could become more normal again at some point in the next 12 months. But things are much less hopeful in the short-term; indeed, the immediate economic prospects of many advanced economies have worsened again as they battle still worryingly high rates of infection and impose new lockdowns.  

For all the optimism generated by the vaccines, the production, distribution and logistical challenges of disseminating them around the world are huge. If too many people refuse to be inoculated, it could slow the pace at which social-distancing measures are eased. And while some countries will be able to launch widespread vaccination programmes in the first half of the year, roll-outs will take longer in others. So there’s light at the end of the tunnel, yes, but it’s still very opaque.  

After the extraordinary collapse in the global economy in 2020, our forecasts for 2021 suggest a rebound is coming. Investors are certainly anticipating a pick-up in growth – and they even see the risk of higher inflation. They have backed the reflation trade vigorously since the first positive vaccine news broke. But we think they may be failing to take into account the scale of the damage from the 2020 recession. Scarring is set to take its toll on our 2022 GDP forecasts. And there is still a reckoning to come over how the enormous pandemic bill is eventually paid off.