More signs that the recovery is hitting the buffers

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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Global Economics Chart Book

Inflation fears to keep central banks in tightening mode

There were signs that supply shortages were starting to ease in some places at the tail end of 2021. World trade was its strongest since shortages began to bite a year ago and industrial production had picked up too, especially in the auto industry as semiconductor supply improved. Our updated G7 Shortages Indicators also suggest that general product shortages began to ease in the US and UK last month. Given the typical co-movement of our indicators, this would imply that other advanced economies might soon be over the worst of their product shortages too. However, the big picture is that shortages remain acute and will take time to unwind. What’s more, these tentatively encouraging pieces of evidence pre-date the Omicron wave, which could yet lead to renewed disruption, particularly if lockdowns become more widespread in China. Central banks sound more concerned about the associated risks to inflation than the hit to activity and we have revised up our interest rate forecasts for several economies accordingly.

14 January 2022

Global Economics Update

Further thoughts on Omicron’s economic effects

While it is very uncertain, we estimate that disruption due to Omicron could knock around 1% off GDP in advanced economies while the outbreak is at its height, mainly due to staff absences. This would be a severe shock by pre-pandemic standards, but smaller than in previous waves. And the damage should fade quickly as staff return to work and some lost output is made up. But the implications for inflation could be more worrying, meaning that most central banks will press on with policy tightening regardless. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

12 January 2022

Global Economics Update

COVID Recovery Monitor

Global coronavirus cases have surged, and pressure is mounting on health systems as hospitalisations rise. Given that Omicron is milder than past variants, governments are typically leaning on booster rollouts and light-touch restrictions rather than resorting to more draconian restrictions on activity. Even so, output is likely to take a hit due to rising numbers of workers isolating with COVID and unable to work from home.

6 January 2022

More from Global Economics Team

Global Economic Outlook

Recoveries under fire as supply crisis spreads

The global recovery will slow in the coming quarters as the initial post-lockdown rebound fades and policy support is reduced. At the same time, supply shortages are likely to persist well into next year, which will act as an additional brake on output. We have revised down our growth forecasts for 2022 in almost all major economies and they generally sit below the consensus, particularly in China and the US. Headline inflation will fall across the world next year as many of the temporary factors that have pushed up inflation this year unwind. But underlying price pressures will build in several places, most notably in the US. Despite this, most developed market central banks will be slower to tighten policy than investors currently anticipate.

26 October 2021

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
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