In 2021, we expect interest rates to remain low and fiscal spending to stay high. We believe this combination will prove supportive of equities and credit, and contribute to a weaker US dollar.

2020 brought an unprecedented fusion of fiscal and monetary policy: To fund social support packages, governments ran an aggregate deficit of over 11% of global GDP in 2020, while the world’s top five central banks printed an aggregate of $5 trillion.


In 2021, we think governments, in general, will continue to “bridge the gap” until a vaccine enables a return to normal economic functioning. We also expect central banks to keep interest rates low to support growth and inflation.

UBS Year Ahead 2021


Just 38% of surveyed investors are worried about the impact of inflation on meeting their financial goals or objectives.

But the longer-term path is less predictable.

One possibility is that governments recoil at the risk of higher debt and inflation, and pull back fiscal spending programs too far or too fast. Monetary policy alone is unlikely to be sufficient to support the economic recovery, so this outcome would likely mean an extended period of disinflation and low growth.

A more likely possibility is that governments are reluctant to enact austerity policies, having so far run much higher deficits without suffering higher inflation or borrowing costs. In this scenario, governments continue to run 40 large deficits and loose monetary policy persists even if inflation moves moderately higher.

Although neither scenario is likely to materialise in 2021, they could begin to shape a longer-term investor narrative, and therefore start to impact asset prices. To prepare for a scenario of higher inflation and negative real interest rates, we recommend investors seek out long-term secular growth, both in public and in private markets. To prepare for disinflation and low or negative rates, investors should lock in available yield.

UBS Year Ahead 2021

How should I plan for inflation?

When it comes to building a financial plan, we have to account for the fact that goods and services tend to rise in cost each year. Inflation can have a meaningful impact on how much investors must save in order to successfully fund their future goals. Even with just 2% inflation, prices would be 80% higher over a 30-year time span. Preparing for inflation requires that investors ensure their portfolios have sufficient exposure to growth and “real” assets, like stocks and real estate, and it demands a careful awareness of withdrawal rates.

The table below shows that higher inflation expectations generally mean investors either have to reduce spending, or try to increase portfolio returns.


For example, an investor with $1 million who wants a less than 20% chance of having less than $500,000 left in 30 years, and expects their assets to return 2% per year with 4.7% volatility, could withdraw $19,000 in the first year, and then 2% more in each subsequent year.

UBS Year Ahead 2021

By UBS Global Wealth Management