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Worst global recession since WWII

The disruption relating to the coronavirus is set to cause the steepest fall in global GDP since the Second World War. We are forecasting a 5½% contraction this year, far bigger than the 0.5% fall seen during the global financial crisis. Once the virus is under control output should rebound, but it will take years to return to its pre-virus path. Central banks are acting boldly and could yet resort to more drastic measures, while fiscal support will see public debt surge. This might imply a danger of future inflation. But we think that the disinflationary effects of weaker demand will dominate, at least over our forecast horizon.
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Global Trade Monitor

Rebound in trade likely to prove short-lived

Official data showed that world trade rose slightly in April and limited data for May suggest that it probably rose further as disruptions from lockdowns in China eased. But weaker global final demand for goods, due to a gradual normalisation in spending patterns, lower real incomes, and higher interest rates, will be a headwind to world trade in the coming months. And although shipping costs remain elevated, the sharp fall in spot freight rates tentatively points to some easing of inflationary pressures for goods.

28 June 2022

Global Inflation Watch

Hawkish turn to dampen inflation

While inflation has broadened out and surprised to the upside in 2022, we maintain the view that it will fall sharply in the year ahead. For one thing, we expect commodity prices to fall. Even if we are wrong about this, prices are unlikely to rise enough to prevent base effects from dragging heavily on headline inflation. What’s more, goods shortages and logistical bottlenecks have improved in some places, spending patterns are normalising, and inventories are being rebuilt. We expect these trends to continue, causing goods price pressures to ease. And, compared to our last Inflation Watch, we think that central banks will deliver more policy tightening, which should help inflation to settle around targets in two years’ time. The key upside risk is that tight labour markets and high inflation expectations will generate persistently high pay growth. Equally, though, central banks might hike rates too far and trigger disinflationary recessions.

28 June 2022

Global Economics Update

PMIs suggest marked slowdown underway in DMs

Having held up better than much of the data in recent months, the S&P Global PMIs have finally taken a considerable leg-down in the US and euro-zone. While the PMIs are still consistent with economic expansion rather than recession in Q2, they nonetheless point to a much slower pace of growth at the end of the quarter, and the forward-looking components are even more downbeat about demand in Q3.

23 June 2022

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Global Economics Chart Book

Near-term inflation pressures mount

Near-term inflationary pressures appear to be building. Some of this reflects factors that are likely to be only temporary, such as the “reopening inflation” associated with the easing of virus-related restrictions. We also think the broad-based rally in commodity prices will go into reverse later this year. But there is a risk that shortages of commodities could constrain the production of goods and services, leading to a more broad-based rise in inflation. So far, there is most evidence of a rise in underlying price pressures in the US, which is consistent with our forecast of a prolonged upward shift in core inflation there.

17 May 2021

Global Economic Outlook

Recovery to proceed apace despite rising risks to EMs

A rise in virus cases and some setbacks to vaccination programmes have pushed back the recoveries in some countries somewhat, but we still expect strong global growth of over 6% this year. The US will continue to lead the way thanks to its strong policy stimulus while the euro-zone will lag further behind than most expect. Downside risks are rising among the EMs, relating partly to struggles to get the virus under control in major economies, including India and Brazil. And while China has emerged strongly from the pandemic, growth there will soften as credit is restrained. This mixed outlook has some interesting implications for inflation: we see significant risks of a sustained pick-up in the US but a more modest threat elsewhere.

23 April 2021

Global Inflation Watch

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.

19 March 2021
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