Macro monthly | The two track recovery | Article – HSBC VisionGo

The two track recovery
Finance  ·    ·  6 mins read

  • The US continues to lead the global recovery and the European outlook is improving too…
  • …India looks to have contained its second wave, but variants are spreading through ASEAN
  • While some central banks are tightening, others are signalling their desire to keep policy loose

The two track recovery across the world is continuing as developed markets with impressive vaccine rollouts are removing restrictions and reopening their economies. Consumers appear ready to get out of the house and start spending on services – evident in the US data and this trend is likely to spread into Europe in the coming months. Conversely, in other parts of the world, notably in Asia, with surging case numbers and lower vaccine numbers, restrictions are tightening.

Mobility data is improving in Europe; India is recovering

Reopenings continue

European mobility data has seen a meaningful pick-up in recent months, while encouragingly, India has seen new cases and deaths from COVID-19 plummet, and our economic recovery tracker is back to near pre-pandemic levels. But different variants are continuing to advance through ASEAN and LatAm, as well as the UK. However, the UK has reopened as planned as nearly 50% of people are now fully vaccinated and hospitalisations are thankfully still relatively low.

Worker shortages are being felt in leisure and hospitality

Job market in focus

As parts of the developed world emerge from restrictions, attention turns to labour markets, where worker shortages are causing havoc for employers, particularly within leisure and hospitality. Wages in the sector are rising quickly as a result. 

In the US, we are seeing the number of people quitting jobs rising, suggesting that workers are feeling more confident in their prospects. Many office workers, particularly young people, want to work from home either full time or at least part time (source: Citrix) and with a large surplus of job openings, employees are exploring their options. A big question mark still hangs over how labour markets will evolve as job support schemes are withdrawn.

Meanwhile, the relatively weak labour market and slightly stretched household balance sheets in mainland China are delaying its consumption recovery. The surveyed unemployment rate has fallen back to the pre-pandemic level, but youth unemployment remains high (source: CEIC).

We still expect elevated inflation to be transitory

Inflation still elevated

Inflation is elevated around the world as supply bottlenecks, shipping disruptions, and surging demand drive up prices. Higher commodity prices and base effects are also lifting headline inflation prints. We still expect this to prove transitory and look for inflation to moderate in 2022. However, heightened prices and post-lockdown booms have forced some central banks to act.

Many G10 central banks look to be keeping rates on hold

Central bank response

Central banks in Brazil, Mexico, Russia, and parts of Central and Eastern Europe have already started tightening, but others across the world are willing to wait. The Fed may have begun discussions on how and when tapering might begin, but a rate rise is still set to be two years away, while many other G10 central banks show little sign of raising rates any time soon (Chart 3), even though house prices keep going up. The People’s Bank of China, however,  recently cut the required reserve ratio by 0.5%, aimed at providing funding to small-and-medium sized enterprises, which account for over 85% of employment (source: CEIC).

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