Monthly economic update: Emerging from the shadows

Looking for freedom

Carsten Brzeski gives his views on the state of the global economy six months into 2021

US: The Fed looks set to pivot on inflation

The US recovery is powering on, but there are worries that the supply capacity of the economy isn't keeping pace. We think the Federal Reserve will soon switch position and acknowledge that inflation may not be as transitory as first thought, paving the way for the first steps towards policy “normalisation” later in the year

Eurozone: Finally, ready for take-off 

With the accelerated reopening of the economy, the eurozone is heading for a strong upturn. While price increases are grabbing headlines, core inflation remains subdued. Although the European Central Bank is in wait-and-see mode, we think the PEPP is unlikely to be lengthened beyond March 2022, but too strong a drop in bond purchases will be avoided

UK: Outlook positive despite virus resurgence 

The UK's final step of the reopening looks set to be postponed amid rapidly-rising Covid-19 cases. But barring a return to stricter rules, the economic damage may be pretty small, though much hinges on whether higher case numbers begin to dent safety perceptions among consumers

China: Chip disruptions from Covid 

The small number of Covid cases in China's Guangdong province is disrupting production and shipments. Supply chains are once again being hit. If Covid can't be contained before the summer holidays, it will also hurt China's retail sales

Asia: Shut that door! 

Bucking the global trend in economic re-opening, Asia has recently been restricting movements again, which is leading us to trim many of our growth forecasts. If China goes further down this track, then we will have to do more than just trim

CEE: The big inflation build-up 

Spiking inflation in Central and Eastern Europe brought responses from central banks and a shift in bias will soon be followed by rate hikes. But price pressures are set to remain in place for the rest of the year as reopening economies boost demand. In FX, we tactically favour Hungary's forint and Poland's zloty to the Czech koruna mostly due to positioning

FX: Trade and tightening; two key factors forcing the dollar lower

Two key themes have played out in FX markets so far this year; the commodity price boom and central banks looking at conventional normalisation policies. The dollar benefits from neither of these and can fall another 5% this year

Rates: Put these on and inflation disappears! 

With bond market goggles on there is no inflation, it seems. Leave them on and look hard enough and a tint of distant deflation dawns. That's one version of where we are. The other rationalises the slip lower in market rates by an intense overflow of liquidity. We like that explanation most. But we are also tempted to at least give those goggles a go, just in case

Bankruptcies: Another source of eurozone divergence 

The petering out of the support measures taken during the Covid crisis is likely to lead to an increase in bankruptcies across eurozone countries. But to what extent? Our analysis sows they'll be another source of divergence across the monetary union

Shortages set to affect goods prices globally, but maybe not for long

As shortages and supply chain disruptions are priced through to consumers, goods inflation is set to trend higher. We still believe the impact will be temporary, but in the US less so than in the eurozone

EU recovery fund boosts growth prospects for weaker economies

Almost all EU countries have now submitted their proposals for the EU Recovery and Resilience Facility. Thanks to a low take-up of loans, the fund's payouts so far will be smaller than expected. But don't underestimate the impact on GDP, which will be sizable for some of the eurozone periphery countries

Biden’s big bang budget 

We are getting used to seeing some massive numbers being thrown around when it comes to US government spending, but the latest budget spending plan is going to come up against major hurdles