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.
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Global Economics Update

What an Evergrande collapse would mean for the world

We think that the ‘China’s Lehman moment’ narrative is wide of the mark. On its own, a managed default or even messy collapse of Evergrande would have little global impact beyond some market turbulence. Even if it were the first of many property developers to go bust in China, we suspect it would take a policy misstep for this to cause a sharp slowdown in its economy. In a hard-landing scenario, several emerging markets are vulnerable. But in general, the global impact of swings in Chinese demand is often overstated.

16 September 2021

Global Economics Update

Sky-high shipping costs pose upside risk to inflation

Our inflation forecasts already incorporate some passthrough of pipeline pressures including higher shipping costs to consumer prices. But given that maritime shipping costs have never surged anywhere near as much as they have done during the past year, the full extent of the passthrough is difficult to predict. Our sense is that inflation risks staying higher for longer than we and others anticipate in the coming year.

14 September 2021

Global Economics Update

The effects of supply shortages

Supply shortages may continue to limit growth and put upward pressure on prices for several months to come before a new wave of COVID infections is brought under control, economies reopen, and spending patterns normalise. Shortages have related to both goods and labour, but in this Update we will focus on goods, answering six key questions about the shortages and their potential implications.

9 September 2021

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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

Global Inflation Watch

Inflation picture more nuanced than headlines suggest

While rising commodity prices and supply shortages are boosting inflation everywhere for now, the outlook is mixed. The boost from energy prices will fade soon as the anniversary of last year’s slump in the oil price passes. And while shortages of inputs including semiconductors, metals and lumber may persist for a bit longer, they should ease in time as supply recovers and consumption patterns normalise. However, some economies face greater risks of sustained inflation than others. Among the advanced economies, spare capacity is likely to be eliminated soonest in the US and signs of widespread labour market tightness are most pronounced there and in Australia. Among the EMs, strong recoveries in China and East Asia are doing little to generate prices pressures but the risks are greater in Central Europe.

21 June 2021

Global Economics Chart Book

Recoveries regaining pace after slow start to the year

Global GDP growth slowed sharply in Q1 as most parts of the world grappled with renewed waves of coronavirus. The US and Korea were among the few exceptions where recoveries accelerated. But with global infection numbers now falling, activity seems to be gaining momentum again. The Global Composite PMI rose to its highest level since April 2006 in May. What’s more, our high frequency COVID Mobility Trackers suggest that activity has risen sharply, particularly in Europe, as restrictions have eased. Other than in particular sectors such as motor vehicle production, there is little evidence so far that recent supply shortages are holding back output. But there are growing signs of inflationary pressure around the world, most notably in the US. Fears of higher inflation should prompt numerous central banks in emerging economies – especially in Central & Eastern Europe – to shift towards tighter monetary policy in the coming quarters. But central banks in major DMs will look through higher inflation this year and next.

11 June 2021
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