Lasting blow to supply capacity is not inevitable

It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to revert to the path of output they were on before the crisis. Nonetheless, with demand likely to be slow to recover fully, this could still take several years. And there will be several important exceptions to this generally optimistic picture.
Vicky Redwood Senior Economic Adviser
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Global Economics Update

Thinking through how we could be wrong on Evergrande

If, contrary to our opinion and the consensus, a collapse of Evergrande ends up having a significant impact on the rest of the world, it will be because it first causes either major financial dislocation within China or a property-led slump in China’s economy. The latter is probably the bigger risk for the global recovery. In view of the wider interest, we are also sending this Global Economics Update to clients of our Emerging Markets Service.

Drop-In: Evergrande – What are the risks to China and the world? Chief Asia Economist Mark Williams and Senior China Economist Julian Evans-Pritchard will be joined by Senior Markets Economist Oliver Jones to take your questions about the Evergrande situation. They’ll be covering the implications of collapse for China’s financial system and growth outlook, and assessing the global markets fallout. Register here for the 0900 BST/1600 HKT session on Thursday, 23rd September.

22 September 2021

Global Economics Update

Surge in gas prices adds to near term price pressure

In this Update, we answer six key questions about the surge in natural gas prices. The key point is that it will keep inflation in DMs and many EMs above central bank targets for a few months longer than we had previously assumed. Governments are already preparing to limit the economic damage and central banks are likely to look through this temporary spike in inflation. But this comes at a time when a host of shortages are already pushing up prices and adds to the upside risks to our inflation and interest rate forecasts.

21 September 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

More from Vicky Redwood

Long Run Focus

Will we start working less?

The downward trend in average working hours in advanced economies has slowed or stalled in the past few decades. Yet there are reasons to think that the decline will resume, at least in some sectors and some countries. Other things equal, fewer hours worked would dent GDP. However, a reduction in working hours could boost participation and/or make workers more productive. As for the impact on the composition of economies, a rise in leisure time could give a boost to recreational sectors.

13 May 2021

Long Run Update

Will demographic changes boost inflationary pressures?

The rapid growth of the global labour supply in the past few decades looks set to give way to a period of much weaker growth. Some argue that this will reverse the decline in inflation seen in recent years as the bargaining power of labour rises and an ageing population boosts the number of consumers relative to producers. But there is a lot of uncertainty about how demographic changes affect inflation. Even if the net impact is to push inflation up moderately, other factors such as the attitudes of policymakers towards inflation are likely to play a far bigger role in determining whether we see higher inflation in the long run.

24 March 2021

Long Run Update

The outlook for deglobalisation

We argued some time ago that globalisation had peaked and a period of deglobalisation might even lie ahead. It is now becoming clearer what to expect – namely a type of regionalism driven by the emergence of separate US-led and China-led spheres. While this decoupling began with trade, it will increasingly spread into technology, market access and financial ties. This will put a modest dent in productivity growth at a global level, but China stands to come off worse than the West given its inefficient state-led model.

16 March 2021
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