Financial conditions now as tight as during the GFC

Financial conditions in advanced economies are now almost as tight as they were in 2009. So far, this has been the result of an economic shock rather than strains within the financial system itself and hence financial conditions are posing less of an independent headwind to growth than during the global financial crisis. However, we are now probably near the point where tight financial conditions begin to exact their own harm on economic activity. Emergency policy measures should help to alleviate these pressures, but the risk is that they prove insufficient to prevent the economic crisis morphing into a financial crisis.
Simon MacAdam Senior Global Economist
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Global Economics Update

Indeed Job Postings point to shortages intensifying

We think that Indeed job data are useful and timely indicators of labour demand, and we will continue to monitor them in the months ahead. The latest data support the view that labour shortages are rising, and are most acute in the US, Australia, and Canada.

18 October 2021

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Shortages limiting growth and boosting inflation

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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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How far will rising commodity prices boost inflation?

We think that the broad-based rally in commodity prices will go into reverse later this year, so the upward pressure on inflation in advanced economies should be temporary. But there is a clear risk of a more sustained pick-up in inflation, especially if shortages persist. Drop-In: Great Inflation 2.0 – Are we facing a 70s revival? (1100 ET/1600 BST, Thurs 13th May) A special 20 minute briefing during which Jennifer McKeown, the head of our Global Economics Service, and Senior Global Economist Simon MacAdam will discuss whether advanced economies are in for a repeat of inflation levels last seen during the 1970s. Register here.

12 May 2021

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Great Inflation 2.0? Lessons from the 1970s

Policy stimulus and tolerance of inflation by central banks may lead to higher inflation in some G7 countries in the coming years. Given the parallels with the run-up to the high-inflation era of the 1970s, it is natural to be worried about history repeating itself. While we accept that medium-term inflation risks are probably skewed to the upside, the lessons from history suggest that the chances of a Great Inflation 2.0 are low.

29 April 2021

Global Economics Update

A closer look at ‘excess’ household savings

Income support and limits on spending had already led households in advanced economies to build up almost $3.5tn in extra cash by the end of 2020, equating to 7.6% of GDP. And the stockpile of these supranormal savings will continue to grow in 2021. We suspect that this money will be used to pay down debt and invested rather than spent in a hurry. Financial investment will support asset prices, while lower debt burdens will strengthen household finances, potentially supporting growth further down the line.

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