Macro monthly | Slower progress | Article – HSBC VisionGo

Slower progress
Finance  ·    ·  7 mins read

  • Rising case numbers and lockdowns in parts of the world are denting optimism but vaccine rollouts are cause for hope
  • Inflationary pressures remain acute, but some signs of a peak in input prices
  • We raised our 2021 eurozone GDP growth forecast to 4.9% (from 4.4%) but trimmed UK GDP to 6.7% (from 7.1%)

Despite some of the discourse in financial markets in recent times, things are getting slightly better on the pandemic front in some parts of the world.

Different pictures across the world

COVID-19 case numbers remain high in Asia...

Case numbers are still high in much of Asia, lockdowns have been re-introduced and extended in some Australian states and the Delta variant is leading to higher case numbers in various parts of the world. But there is some better news in other places.

…but are broadly stable across Europe

Across Europe, the number of cases are still broadly stable, although rising more rapidly in Germany and the UK (Chart 1), and intensive care unit occupancy rates for COVID-19 patients remain relatively contained. Most European countries are getting closer to the vaccination target of 70% of the population, which they had set out to meet by the end of summer.

There is growing evidence of vaccine effectiveness

And there is also growing evidence of vaccine effectiveness across the world. Even with cases at more than 30k per day, UK hospitalisations stayed much lower than in previous waves, and the country has now not seen any excess deaths since mid-February, when all over-50s could have received their first vaccine. 

Elsewhere, in highly-vaccinated parts of the world, we’re seeing hospitalisation rates and deaths rise much more slowly than cases. Whilst there is a long way to go with the global vaccine rollout, this is clearly good news. 

Cost-push inflation may have peaked

Inflation still elevated but may be receding

There may be emerging signs that the worst of the cost-push inflationary pressures is behind us too, especially in Asia. Shipping costs are elevated and firms continue to face higher input costs, but global shipping volumes have edged down, consumer spending keeps rotating away from goods, and some commodity prices, such as lumber, oil and precious metals, are falling. The Manheim used vehicle price index in the US has now fallen 3% in two months.

Consumer spending revival likely to be Q3 and beyond

GDP releases

Q2 GDP data have started to roll in, too, with a mixed bag of results. We think the revival in consumer spending in much of the world is more likely to be seen in Q3 and beyond, with restrictions being lifted across Europe at the start of the quarter, and in Asia this is likely to come much later. However, in terms of sequential momentum, global industrial and trade activity may have peaked in May based on PMIs and other business surveys across the world. The global economy, in aggregate, is still improving, but at a slower pace.

Our GDP growth forecasts

We have raised our 2021 eurozone GDP forecast...

We raised our 2021 eurozone GDP growth forecast to 4.9% (from 4.4%) mostly due to stronger-than-expected Q2 GDP growth of 2.0% q-o-q. Leading indicators for Q3 suggest that a rapid pace of expansion has continued, even if it has come off its recent highs as the growth impulse from unlocking wanes. This means that we lock in most of the upside news for Q2 without assuming much near-term payback in terms of a weaker Q3 or beyond.

…but have lowered it for the UK

Meanwhile, in the UK, we have lowered our 2021 GDP growth forecast to 6.7% (from 7.1%) given the lower-than-expected Q2 print. We might normally expect ‘payback’ in the summer but we are not revising up our Q3 forecasts as the rain, ‘pingdemic’ and other supply shortages appear to have put the breaks on growth. Instead, we are slightly revising up growth in Q4 and Q1 2022, and raise our 2022 GDP growth forecast to 5.2% (from 5.1%).

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