Inflation metrics have remained stubbornly high in many parts of the world, largely due to the ongoing supply chain issues across multiple sectors. This is leading many central banks to consider tightening monetary policy to control inflation and is weighing on growth forecasts for the remainder of 2021 and into 2022.
The IMF has updated its latest estimates and now thinks the global economy will grow +5.9% in 2021 (a 0.1% downgrade from its July forecast), the US economy will grow +6% (a 1% downgrade), and the Chinese economy will grow +8% (a 0.1% downgrade). It has left forecasts for 2022 global growth of +4.9% unchanged, saying in its statement it thinks the global recovery is “continuing” but has been “weakened” by higher inflation.
Contrary to sensationalist headlines, this is a minor downgrade and is reflecting the impact of issues we already knew about (the delta variant, supply disruptions, higher inflation). The adjusted growth targets are still, in absolute terms, robust rates of expansion. Markets continue to expect growth headwinds to be transitory in nature and equity markets agree, for the time being, with S&P 500 bouncing +3% from its short-term low two weeks ago.
China energy shortages start to bite, but some economic indicators remain positive
The largest provincial economy in China’s rust belt has warned that power shortages are worsening (despite government efforts to the contrary) as price volatility in global energy markets causes an international scramble for energy. Despite this headwind, economic indicators suggest a more favourable outlook. The Caixin Services PMI came in at 53.4 in September, beating expectations for 49.2, and moving well into expansionary territory (signified by any reading above 50). Chinese exports, in US dollar terms, surged +28.1% year-on-year (YoY) in September, beating expectations for +21%. China’s trade surplus in September also came in far higher than consensus estimates, hitting $66.8 billion. While the domestic economy has slowed in recent months, the export side of the economy remains in rude health.
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