Macro monthly Nov 2021 | Bottlenecks impacting inflation and growth | Article – HSBC VisionGo

Bottlenecks impacting inflation and growth
Finance  ·    ·  7 mins read

  • Consumer demand is being held back by supply bottlenecks...
  • …leading to higher prices and central bank unease
  • We recently lowered our 2021 GDP forecast for the eurozone to 5% but raised it for the UK to 7.1%

Despite an ongoing battle against COVID-19 in many parts of the world, global demand for goods, services, and property remains high. Too high, in fact, given that we are unable to supply enough to satisfy demand as a result of shipping disruptions and a shortage of key components or workers. We look at the potential impact this has on inflation and how markets and central banks are responding.

Supply shortages lingering

Labour shortages could prove persistent

Most of the economic data in Q3 and into Q4 appears to have been held back by supply bottlenecks that, at least for now, show little sign of improving. Labour shortages may prove to be more persistent if people opt to stay out of the labour force for caring, educational, and medical reasons, or because of other income gains, such as from rising prices of equities and other assets: a recent survey (by Civic Science, October 2021) suggests that 4% of US workers have left their jobs due to cryptocurrency profits. Amid such labour shortages, firms may be incentivised to automate processes more quickly.

Supply chains in focus

There are early signs of easing supply chain stress

On the supply chain front, there are some early, tentative signs that freight costs are levelling off and encouraging anecdotes from some car companies such as Toyota saying that “October was the bottom of our semiconductor supply crunch” (CNBC, 2 November 2021). But survey data, such as October’s PMIs suggest that supply chains remain stretched and the US ISM manufacturing survey was littered with comments about shortages (see Charts 1 and 2). 

Inflationary pressures persist

Markets are pricing in inflationary pressures...

With demand outstripping supply, inflationary pressures show no sign of abating for now and, given higher energy prices, markets are pricing in a greater chance of these pressures persisting for longer. These, coupled with surprisingly aggressive rate hikes – both in terms of the timing and magnitude – from central banks across Central and Eastern Europe and Latin America, rising inflation has contributed to a re-think of G10 central bank pricing too

…with higher government bond rates

This was clearly seen around the Federal Reserve, Bank of England, and Reserve Bank of Australia meetings in early November, with increased interest rate volatility for shorter-term government bonds. However, despite lower US 10-year yields, rates on government bonds have risen across much of the world in recent weeks given these shifts in market expectations (see Chart 3).

Looking ahead

How bottlenecks evolve are key for growth and inflation

How these bottlenecks evolve in the coming months will therefore be key for the growth and inflation outlook into 2022. It seems likely that these pressures will persist until at least the middle of next year, even if they may not get much worse. But after that, how quickly shipping prices fall, backlogs alleviate, and people return to the labour force will have a significant impact on growth speeds, inflation rates, and how central banks respond.

Our GDP forecasts

We recently lowered our eurozone GDP forecasts for 2021 to 5.0% (from 5.2%) given the more drawn out disruption to supply chains and manufacturing. There was no change to our forecast for 2022, which remains 4.0% while we see 2023 growth 0.1 percentage points higher, at 2.0%, due to stronger German manufacturing growth in H2 2022, once disruption has eased. 

In the UK, we expect a slower rate of GDP growth in Q3 2021 than previously forecast given supply issues, but the government’s big upward revisions to growth in Q1 and Q2 means that we recently changed our annual growth forecasts for 2021 and 2022 to 7.1% and 5.1%, respectively.

Disclosure appendix

This document is for information purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Information in this document is general and should not be construed as investment advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on it, consider the appropriateness of the information, having regard to their objectives, financial situation and needs and, if necessary, seek professional investment and tax advice.
Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products. 
The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future results.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered here on a principal or agency basis.
Whether, or in what time frame, an update of this information will be published is not determined in advance.
Additional disclosures
1. This report is dated as at 25 November 2021.
2. All market data included in this report are dated as at close 24 November 2021, unless a different date and/or a specific time of day is indicated in the report.
3. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
4. You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.


This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong. This document is for general circulation and information purposes only. This document is not prepared with any particular customers or purposes in mind and does not take into account any investment objectives, financial situation or personal circumstances or needs of any particular customer. HBAP has prepared this document based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. The contents of this document are subject to change without notice.
This document is not investment advice or recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. You SHOULD NOT use or rely on this document in making any investment decision or decision to buy or sell currency. HBAP is not responsible for such use or reliance by you. You SHOULD consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this document.
You SHOULD NOT reproduce or further distribute the contents of this document to any person or entity, whether in whole or in part, for any purpose. This document may not be distributed to the US, Canada or Australia or any other jurisdiction where its distribution is unlawful.
Hong Kong
In Hong Kong, this document is distributed by HBAP to its customers for general reference only. HBAP is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use or reliance of this document. HBAP gives no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document.
Notwithstanding this document is not investment advice, please be aware of the following for the sake of completeness. Past performance is not an indication of future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. When an investment is denominated in a currency other than the local currency of an investor, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. Where there is no recognised market for an investment, it may be difficult for an investor to sell the investment or to obtain reliable information about its value or the extent of the risk associated with it.
This document contains forward-looking statements which are, by their nature, subject to significant risks and uncertainties. Such statements are projections, do not represent any one investment and are used for illustration purpose only. Customers are reminded that there can be no assurance that economic conditions described herein will remain in the future. Actual results may differ materially from the forecasts/estimates. No assurance is given that those expectations reflected in those forward-looking statements will prove to have been correct or come to fruition, and you are cautioned not to place undue reliance on such statements. No obligation is undertaken to publicly update or revise any forward-looking statements contained in this document or any other related document whether as a result of new information, future events or otherwise.
The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates and their respective officers and/or employees, may have interests in any products referred to in this document by acting in various roles including as distributor, holder of principal positions, adviser or lender. The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and employees, may receive fees, brokerage or commissions for acting in those capacities. In addition, The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and/or employees, may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in this document.
© Copyright 2021. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED. No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.