Deutsche Bank: Global economy compensates for coronavirus losses in mid-2021

Deutsche Bank said on Monday that global economic output will return to its pre-pandemic level by mid-2021, after a stronger-than-expected economic recovery in recent months, but high debt levels and a policy shift may increase the risk of the financial crisis.

"The global economic recovery from the steepest levels of Covid-19 downturn in the past winter and spring has been addressed much faster than we imagined," said Peter Huber, global director of economic research at Deutsche.

Huber added, "With the third quarter approaching its end, our estimates indicate that the level of global GDP has almost cut the way back to its pre-virus level, and we now expect the path to be completed by the middle of next year, which is two quarter years sooner than our previous expectations.

Deutsche raised its forecast for global output, expecting it to shrink 3.9% this year after it forecast in May a contraction of 5.9% in 2020. Its forecast for growth in 2021 improved to 5.6% from 5.3%.

However, Huber added that there was still much uncertainty and potential trouble.

Fears about second waves of infections that are increasing in the United States and Europe intensify the doubts surrounding the expectations.

The economic situation, while the US elections, whose outcome is "difficult to predict", exacerbate the situation. Deutsche said that in the meantime, Europe faces the risk of an unregulated UK exit from the European Union.

More trouble could come from a shift in monetary policy, albeit for a few years to come.

"Growing debt and potential overvaluation of assets, fueled by the need for ultra-easy monetary policy, constitute the grave risk of a global financial crisis looming on the horizon as central banks begin to shift from easing ... any sudden increases in inflation will reinforce this risk." Huber wrote.