PMIs: Still no sign of supply problems letting up

The October manufacturing PMIs gave us more of the same – evidence that supply disruptions are getting worse, industrial output growth is weakening, and price pressures are intensifying. This fits with our view that the world economy is in for a period of slower growth and higher inflation in the coming months.
Simon MacAdam Senior Global Economist
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Global Economics Update

What if energy prices keep rising?

While ongoing supply shortages have led us to revise up our forecasts for crude oil and wholesale gas prices, we still expect significant falls this year which would reduce headline inflation in major developed markets by around 2ppts. But there are upside risks. In a plausible scenario involving Brent crude hitting $120pb, headline inflation would stay far above target in major DMs, at about 5.5% on average in 2022.

20 January 2022

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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

More from Simon MacAdam

Global Economics Focus

Do inflation expectations matter?

We have long been sceptical of the conventional view that inflation expectations have been an important determinant of inflation in advanced economies. At the same time, though, we doubt that expectations are as ‘anchored’ at low levels or at central bank targets as is often assumed. So, while expectations haven’t contributed to higher inflation for decades, they could do so in future if the conditions are right. The longer that inflation stays high against a backdrop of tight labour markets, the greater the threat that expectations spring to life and drive inflation higher. The risk of this happening soon is greatest in the US.

1 November 2021

Global Economics Update

PMIs: Services left to do the heavy lifting

The flash PMIs for October brought news of an encouraging start to Q4 for services sector activity, alongside yet more evidence that shortages are holding back growth in industry and stoking even stronger price pressures. If it wasn’t clear already, inflation is going to stay higher for longer in the US and Europe.

22 October 2021

Global Economics Update

PMIs: More signs of supply crimping industrial recovery

The key message from today’s batch of PMIs for September is that supply constraints are still limiting growth in industry, and there is little to suggest they will ease materially any time soon. So, manufacturers and wholesalers will continue to face higher costs, raising the chances of inflation staying higher for longer.

1 October 2021
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