Inflation is about to jump, but will the rise persist?

Inflation will rise sharply in every major economy in the months ahead, driven by a rebound in energy inflation, tax changes, and supply shortages. On average, CPI inflation in the advanced economies looks set to rise from 1.1% in February to 2.6% in May. But while the increase will probably prove transitory in the euro-zone, we expect a higher rate of core inflation to persist in the US. The US recovery is already relatively advanced, and the economy is set to benefit from another round of fiscal stimulus. The labour market looks tighter than that in the euro-zone and there is firmer evidence of rising input costs being passed on to consumers. What’s more, the Fed has made a more decisive shift towards tolerating higher inflation than the ECB, which has served to boost inflation expectations further.
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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

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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.

12 August 2021

Global Economic Outlook

Pandemic rebound peaks but recovery story still intact

The initial post-pandemic resurgence is nearing its zenith, but strong policy support and limited private sector debt should allow most economies to grow at a healthy pace over the next two years. The US and China were among the fastest to recover to their pre-virus paths or even beyond, so it is no surprise that they are slowing first, whereas growth in the euro-zone and Japan has yet to peak. The spreading Delta variant is a risk, but mainly to Emerging Markets where vaccination is less advanced. As goods shortages ease, activity normalises, and commodity prices fall, most economies should see inflation drop back towards central bank targets and policy tightening will generally be more limited or come later than markets expect. Even in the US, where inflation is a bigger threat, we do not expect interest rate hikes until the first half of 2023.

28 July 2021

Global Economics Chart Book

Broad recovery continues, but Delta poses some risks

Global economic activity looks to have perked up recently, despite a slowdown in China and a slightly weaker re-opening bounce in the US than most had anticipated. The hard economic data have revealed further improvements in global industrial output and private consumption, and the business surveys remain strong even if many suggest that demand growth has peaked. Moreover, our Mobility Trackers have surged during the past two months. However, coronavirus infections seem to be at the start of another wave driven by the virulent Delta variant, which has become the dominant strain in numerous countries. (See Chart 1.) For economies where vaccination coverage is high, the early signs are that major vaccines are effective in preventing severe disease and death from the variant. But this leaves large parts of the emerging world facing the risk of renewed stringent lockdowns. And India’s experience of battling the variant suggests that this could be a substantial setback on the road to economic recovery.

15 July 2021
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