Global Economics

Global Economics Chart Book

Shortages limiting growth and boosting inflation

With shortages of goods and labour still dominating the news, and following our Focus research into global shortages, we have added a new page to the Global Economics Chart Book to monitor their evolution. While the global economy has continued to grow at a fairly healthy pace, businesses are reporting that shortages are limiting growth, particularly in advanced economies. Suppliers’ delivery times have continued to lengthen, backlogs of work are mounting and congestion at ports has increased. Most of the shortages should begin to ease in the year ahead, but shortages of labour could be relatively persistent. Staffing issues seem most pronounced in the US and UK, implying that the risk of sustained above-target inflation is also greatest in those economies.

14 October 2021

Global Inflation Watch

Shortages skew inflation risks to the upside

Inflation is set to stay higher for longer than we previously envisaged due to surging energy prices and goods shortages. The boost from energy will go into reverse next year due to base effects and lower oil and gas prices. Goods shortages are worsening and will persist for some time given lean inventories, pandemic-related shutdowns in Asia, and strong demand for imported goods. These pressures should start to ease next year. But there is a risk that the shortages trigger a more persistent pick-up in price pressures, particularly when labour is also in short supply. Staff shortages are most pronounced in the US and intensifying rapidly in the UK and Canada. In all, while we expect inflation to ease back to below target in the next couple of years in Japan and Europe, it will settle at higher rates in the US.

11 October 2021

Global Economics Update

Economies after COVID: one year on

It is a year since we published our “Economies after COVID” series, so now seems like a good time to pause and take stock of how our predictions about the legacy of the pandemic are shaping up. There is a still a long way to go until the pandemic’s full effects can be judged, not least because the pandemic is not even over yet; only a few countries are at the point of transitioning to treating COVID-19 as an endemic disease. But, so far, it is looking like we were right to judge that the legacy of the pandemic would be found in broader issues like consumer behaviour and globalisation, rather than narrow measures of GDP.

8 October 2021

Our view

There has been mounting evidence that the pace of the global recovery has slowed. In part, this moderation in growth has been benign, reflecting a natural normalisation of activity as the effects of past stimulus fade and output approaches or exceeds pre-virus levels. However, in many economies, it also reflects increased consumer caution about high virus cases, or various shortages limiting how fast economies can grow. Goods shortages are still worsening and are likely to persist well into next year, given pandemic-related shutdowns in Asia, strong demand for traded goods, logistical logjams, and low inventories. As a result, global industry will continue to struggle to grow in the coming quarters, and inflation is likely to stay a little higher for longer than we had previously forecast. The risks of a more persistent pick-up in inflation are greatest where labour shortages are most acute and are therefore most likely to bring about a sustained acceleration in wage growth. On this basis, the upside risks to inflation among DMs are greatest in the UK, Canada, and especially the US.

Latest Outlook

Global Economic Outlook

Pandemic rebound peaks but recovery story still intact

The initial post-pandemic resurgence is nearing its zenith, but strong policy support and limited private sector debt should allow most economies to grow at a healthy pace over the next two years. The US and China were among the fastest to recover to their pre-virus paths or even beyond, so it is no surprise that they are slowing first, whereas growth in the euro-zone and Japan has yet to peak. The spreading Delta variant is a risk, but mainly to Emerging Markets where vaccination is less advanced. As goods shortages ease, activity normalises, and commodity prices fall, most economies should see inflation drop back towards central bank targets and policy tightening will generally be more limited or come later than markets expect. Even in the US, where inflation is a bigger threat, we do not expect interest rate hikes until the first half of 2023.

28 July 2021