A synchronised global economic recovery is underway, notwithstanding the continuing battleagainst COVID-19. Every economy we cover is projected to register a meaningful rebound inannual average GDP growth this year. Beneath the surface, the picture is bumpier, however.Growth rates are set to be fairly erratic on a quarterly basis and they will vary enormouslybetween economies and within them. Much will depend on a series of factors including: whethergovernments prefer a strategy of eliminating or suppressing the pandemic; access to – and thepace of roll-out of – effective vaccines; the structure of the economy; the willingness ofhouseholds to spend their accumulated savings; and the scale and mix of policy stimulus.In the midst of all of this, a great experiment has begun. The US has embarked upon a fiscalstimulus the likes of which no major economy has seen in peacetime. But this is at a time whenits economy is already recovering. And at a time when the Fed has made it clear that it will eventolerate moderately higher inflation until the economy generates full employment. It could proveto be a very effective policy combination. Alternatively, it could prove to be a big mistake. Whilethe impact of the latest fiscal package on US growth may lift exports for some countries, inothers the feared inflationary impact on the US economy, and hence on global financialconditions and FX moves, could bedamaging. Given the slack in labour markets, we do notexpect this year’s rise in consumer price inflation to be sustained, but continued loose policymeans asset price inflation might well be. Either way, financial stability risks appear set to grow.