This will lead to a significant overshoot of the structural deficit planned for the year, which the government would formalize by invoking an “exit clause” from the committed fiscal targets. Although new official projections are not yet available, it seems clear that, despite  Page 2 of 27  the improved outlook for activity, this year’s fiscal impulse will not only exceed the forecast but will be significantly higher than in 2020. Despite the recovery of activity and the extension of fiscal packages, the overall economic sentiment worsened in recent months, with consumer expectations still in pessimistic ground. This could be explained by factors such as the evolution of infections and quarantines, and the heterogeneity observed in the recovery. About the latter, it stands out that the performance of part of services, construction and passenger transportation sectors is still not matching pre-pandemic levels, a milestone that trade and manufacturing achieved six months ago or before. Add to this the aforementioned heterogeneity in the labor market (Figure 6). Differences are observed in the case of business expectations, with smaller firms and hardest-hit sectors lagging behind in the recovery. The Business Perceptions Report (IPN) for May reported that smaller companies were the worst affected by the quarantines in March and April. In addition, the IPN noted that a significant percentage of companies were having second thoughts about their investment plans for this year or had simply decided to shelve them altogether. Uncertainty indicators remain high and well above those prior to the social crisis.

Annual wage growth has also slowed considerably after peaking early in the year. The savings rate has been recovering in the recent months after a considerable drop in the second and third quarters. Household deposits resumed growth driven by interest rates attractive for depositors. In this context, strong growth in retail lending underpins consumer demand without posing inflation risks. The evolution of the household behaviour model meets our expectations. However, more arguments call for a key rate hike. What are these arguments? They are associated with both external and domestic factors. External factors include, first, the state of the global economy as a whole and the situation in emerging markets. Certainly, global financial markets have been less volatile this quarter than they were in August and September. This is partially attributed to the revision of monetary policy projections by major central banks. The next year normalisation may prove slower than expected, thus mitigating the risk of capital outflow from emerging markets. However, it is important that the altered projections of policy revision by key central banks are associated with downgraded next year growth forecasts for major economies. Also, the current standstill in trade disputes may merely prove a temporary truce. These risks are quite tangible for emerging market economies. Second, we have here the oil glut risk in 2019. This is partially associated with a downward revision of the global demand outlook. However, the main reason is an aggressive expansion of oil production in the US.