News release

Vanguard Publishes 2021 Economic and Market Outlook Report

Vaccine efficacy is the lead contributor to a stronger economic recovery

VALLEY FORGE, PA (December 9, 2020)—Vanguard today released its comprehensive outlook and analysis on the future of the global economy and financial markets. Authored by the firm’s respected economists and investment strategists, this year’s report, “Vanguard Economic and Market Outlook 2021: Approaching the dawn,” analyzes the short-and-long-term effects of COVID-19 on the global economy and discusses both challenges and opportunities for fixed income and equity market returns over the coming years.

“COVID-19 has upended the global economy and produced the most profound economic shock witnessed in quite some time,” said Joe Davis, Global Chief Economist and head of Vanguard’s Investment Strategy Group. “Therefore, our economic outlook for 2021 is predicated on positive health outcomes for the broader population, as a healthy economy begins and ends with human health.”

Examining near- and long-term effects of COVID-19

As Vanguard economists indicated in our firm’s mid-year outlook, COVID-19 caused the sharpest and deepest short-term economic contraction in modern history. Economies around the world continue on their paths to recovery and, thanks to swift fiscal and monetary policy response, many are in a better position now than during the second and third quarters of 2020. Vanguard’s outlook foresees supportive measures continuing into 2021, though such support will rely heavily on the virus’s path, vaccine implementation, and health outcomes.

The next phase of recovery, outlined in the report, depends on greater immunity to COVID-19 and reduced consumer reluctance to engage in normal economic activities. Should a vaccine become distributed, administered broadly, and be effective, much of the economic losses from COVID-19 could be recovered in the next year. That said, there is risk that if immunity does not rise, economies may only see marginal progress from current levels. Vanguard’s base case economic scenario for 2021 envisions:

  • Major economies will achieve greater immunity to COVID-19,
  • Face-to-face social and business activity will normalize,
  • Unemployment rates will fall,
  • Inflation rates will move higher, and,
  • Pre-pandemic levels of economic output will be reached.

Looking beyond the shadow of COVID-19, Vanguard’s outlook details longer-term affects that the pandemic may have on the economy, including: the acceleration of work automation and digitalization (i.e.: working remotely), continued deglobalization, and changes in the expectations and preferences for government policy. Further ahead, Vanguard believes the global economy will regain much of the footing it lost during the pandemic, including: a return to steady but still moderate growth, with inflation dynamics muted from the effects of technology adoption and demographics, and interest rates normalizing gradually from historic lows.

A moderating outlook for global asset returns

According to Vanguard’s Capital Markets Model projections, the firm’s proprietary investment analysis tool used to produce simulations and analyses that help to inform effective investment decisions, Vanguard’s outlook for global equities is in the 5%-7% range for returns over the next decade. While this range is below recent returns based on valuations and interest rates, global equities are anticipated to continue to outperform most other investments and the rate of inflation.

For U.S. equities, Vanguard investment strategists paint a more conservative picture: expected returns over the next ten years is in the modest 3.5%-6% range—or, roughly half of the 10.6% annualized return investors have experience over the past 30 years. Parts of the U.S. equity market, including value-oriented sectors, are projected to have somewhat higher returns after an extended period of significant underperformance. For non-U.S. equities, investors may see stronger long-term returns, in the 7%-9% range, due to more reasonable equity valuations and higher dividend yields, among other factors.

Vanguard economists expect interest rates globally to remain low despite a constructive outlook for firming global economic growth and inflation as 2021 progresses. While yield curves may steepen, short-term rates are unlikely to rise in any major developed market as monetary policy remains highly accommodative. Vanguard expects bond portfolios, of all types and maturities, to earn returns close to their current yield levels. As 2021 unfolds, the greatest risk factor would appear to be higher-than-expected inflation.

Risks to the outlook

The risk to the economy and markets should shift as 2021 progresses. Between now and widespread vaccine distribution, health-related risks to economic growth and sentiment should prevail. However, as growth and inflation firm in 2021 and immunity to COVID-19 increases, an “inflation scare” is possible. Ultimately, inflation should cyclically bounce higher in the middle of 2021 from current lows, before plateauing near 2%, but such a move could introduce market volatility.

In 2020, disciplined investors were yet again rewarded for remaining invested in the financial markets despite troubling headlines and a challenging environment. For 2021, the wisdom will be to maintain that same level of discipline and long-term focus, while acknowledging returns may moderate from the past.


About Vanguard

Vanguard is one of the world’s largest investment management companies. As of October 31, 2020, Vanguard managed $6.3 trillion in global assets. The firm, headquartered in Valley Forge, Pennsylvania, offers 421 funds to its more than 30 million investors worldwide. For more information, visit

All investing is subject to risk, including the possible loss of the money you invest. Investments in bonds are subject to interest rate, credit, and inflation risk. 

IMPORTANT: The projections and other information generated by the Vanguard Capital Markets Model regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. VCMM results will vary with each use and over time.

The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.  

The Vanguard Capital Markets Model® is a proprietary financial simulation tool developed and maintained by Vanguard’s primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include U.S. and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, U.S. money markets, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over several time horizons. Forecasts are obtained by computing measures of central tendency in these simulations. Results produced by the tool will vary with each use and over time.