Latest US macro-economic data confirmed the impressive pace of the country’s economic recovery. The US economy expanded at an annualised 6.4% in Q1 2021, and economists see it speeding up further in Q2 2021, when expectations are for annualised growth of 8.2%. To put these numbers into context, the OECD recently upgraded its global GDP growth expectations to 5.8% in 2021 and 4.4% in 2022, bearing in mind that the long-term global GDP growth is expected to be around 2% over the next 40 years. US Inflation remains above the FED target, but a transition in consumer spending from goods to services should pull inflation pressures lower in the near future. The strong ISM and IHS Markit Manufacturing PMIs recently released are a further, if needed, confirmation that economic activity is strong and, despite the decline of the Consumer Confidence reading in May, sentiment remains positive.
Europe is showing signs of an economic turnaround. Lead indicators look really promising, with the IHS Markit Manufacturing PMI for May hitting a record of 63.1. This is the eleventh straight month of expansion. Inflation data in Germany (CPI at 2.5% in May), should not be seen as a source of concerns as it’s likely been caused by higher energy prices and the temporary removal of Germany’s VAT reduction, neither of which are structural factors. From a COVID-19 point of view, and taking in to account all the negative effects that this had on European tourism, the European Commission has proposed that vaccinated tourists should be exempted from mandatory testing or quarantine measures when travelling between EU member states. This would be a progressive relaxation of travel restrictions reflecting the increased proportion of the European population that is now vaccinated against Covid-19. It looks as though, after months of negative headlines and sluggish data, clear positive signs are finally emerging out of Europe.
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