Recent indicators confirm that the global recovery has continued, but also that it has entered a slower and more difficult phase. US GDP growth slowed sharply in Q3, and our China Activity Proxy suggests that there was a large contraction there. (See Chart 1.) Growth was stronger in the euro-zone, but high-frequency data suggest that the latest rise in virus case numbers is hurting discretionary spending. The biggest brake on output is still coming from supply shortages, which have intensified. Global industrial production had already struggled to grow at all this year, and now looks to have fallen outright. With headwinds from shortages unlikely to fade soon, consensus forecasts for GDP growth in 2022 now generally look too optimistic. At the same time, worsening shortages are increasing the risks that inflation will drop back more slowly and from a higher level in 2022, making the next few months uncomfortable for major central banks.
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