Elevated inflation, if left unaddressed, could cause a de-anchoring of inflation expectations, an increase in risk premia, greater price distortion and hence longer-term costs for the economy. Although at first glance, central banks face a dilemma - hiking interest rates to lower inflation at the risk of causing an increase in unemployment or focusing on the labour market and accepting the risk that inflation stays high for longer -, they can only choose between acting swiftly or face an even bigger challenge later to bring inflation back under control. Recent statements by officials of the Federal Reserve, the ECB and the Bank of England acknowledge the need to act but their decisions and guidance are very different and reflect the differences in the macro environment.
The global manufacturing PMI edged lower in April. The US and the UK recorded a small increase but there was a big improvement in Australia, Russia and even more so in Hong Kong. The euro area saw a decline but amongst its countries divergences trends were noted with an increase in France and the Netherlands and a decline in Germany and Italy. In China, Covid-19 infections led to a drop in the PMI to 46.0. The services PMI saw a significant decline in the US and a large improvement in the euro area. These developments are the mirror image of what we saw in manufacturing. France and Germany had better data but sentiment jumped in Italy and Spain. Japan had a moderate improvement. Data were significantly better in Brazil
Contrary to expectations (annualised quarterly growth of 1%) US GDP contracted by an annualised quarterly rate of 1.4% in Q1 2022. This surprise fall hides a more nuanced and less negative reality. The economic engines of household consumption and business investment are robust and contributed 1.8 points and 1.3 points of growth respectively. However, reduced inventories at companies (contribution from changes in inventory of -0.8 of a point) and a reduction in public spending (contribution of -0.5 of a point), due to the ending of several support programmes, had a negative effect on growth. But the biggest negative contribution came from international trade (-3.2 points), which was the main reason for the drop in quarterly GDP
In the space of just a few months, growth prospects in the eurozone have deteriorated markedly. So much so that the risk of a recession is looming this year. Between our growth forecast from early 2021 – when it peaked at 5.5% – and our current scenario, drawn up in mid-March 2022, expected growth has been about halved; we now expect a figure of 2.8%. As recently as November 2021, we were still forecasting 4.2%. This figure of 2.8% still looks very high, as it is well above the long-term trend rate of 1.6% per year on average between 1996 and 2019. However, it relies on an exceptionally high growth carry-over of 2.1% in Q1 2022 and, for the subsequent quarters, on projected weak but positive growth
For the first time since December 2021, the number of new global Covid-19 cases for the week has fallen below the symbolic level of 5 million (average for a moving seven-day period). Some 4.3 million new cases were recorded between 26 April and 3 May, a fall of 15% on the previous week. The fall in infections continued in Asia (-24%) and Europe (-17%), but other regions indicated an increase in case numbers: North America (+11%), South America (+8%) and Africa (+4%). To date, 12 billion vaccine doses have been given around the world, taking the share of the global population to have received at least one jab to 65.4%. Despite this, in some parts of the world overall vaccine coverage remains low, with just 15.8% of people in low income countries having received at least their first dose.
