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.
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Global Economics Focus

Will labour shortages spur productivity gains?

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2 December 2021

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1 December 2021

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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 Chart Book

Global recovery slowing down a gear

There have been growing signs of a slowdown in the pace of the global recovery in recent months. World industrial production fell in July and retail sales declined in almost all major economies, while the business surveys suggest that activity softened again in August. To some extent, 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, high frequency data on activities such as restaurant dining show that consumer caution has returned in some places as virus cases have risen again. What’s more, the surveys offer evidence that widespread shortages of goods and labour are limiting growth. With the notable exception of the euro-zone, we think that the rapid phase of the recovery is already in the rear-view mirror for the world’s major economies.

20 September 2021

Global Economics Chart Book

Peak global growth narrative lacks nuance

Slowdowns in China and the US should not be taken as evidence that the global recovery is stalling. Admittedly, it is not just some high-profile data from the US and China that have weakened recently. Recoveries in retail sales, industrial output, and trade more broadly have generally flattened off, while the PMIs have dipped too. But some commentators have cast these developments in too negative a light. Growth in the US is normalising after unprecedented stimulus and China’s economy is coming back down to earth from above-trend levels. Meanwhile, many survey indicators have merely edged down from record levels. And while the softer production and sales of goods can partly be pinned on shortages of materials and parts, they also reflect a benign reversion of consumer spending away from goods towards services as economies re-open. Most of the world is behind the US and China in re-opening and so is yet to reap the full benefits of lifting restrictions. While weaker growth in China will exert an arithmetic drag on global growth in Q3 and Q4, we expect a pick-up in growth in the rest of the world in the second half of the year.

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