Macro and financial environment
The Covid-19 pandemic provoked the worst economic downturn since the Great Depression with global economic activity and trade dropping sharply in 2020 while global economic policy uncertainty soared to all-time highs.
Disruptions in global supply chains and weaker demand for exports undermined manufacturing and global trade, while the pandemic and resulting containment measures also dragged on domestic production and demand.
A robust policy response helped contain the economic and social fallout and all governments launched sizeable fiscal support measures.
In the first months of 2021, financial markets looked beyond the near-term hurdles, and long-term bond yields increased, particularly in the US. In Europe, market-implied long-term inflation expectations rose modestly, but the accommodative monetary policy stance has contained an increase in long-term government bond yields. High uncertainty remains around the duration and magnitude of the shock and the timing and speed of the subsequent recovery.