The global manufacturing PMI has been stable since the month of August although over the same period, the data have weakened in the US and the Eurozone, whilst staying well above the global level. Focusing on November, there was a significant improvement in France and Italy and even more so in Australia. The recent upward trend continues in Japan where the PMI is now solidly above the 50 level. The Czech Republic, South Africa and India saw particularly strong increases.
World trade tensions and supply chain frictions will continue to be major sources of uncertainty in 2022, given their impact on imports prices, and in turn, consumer prices. Based on simulations, UNCTAD estimates that an increase in maritime freight costs would drive up global import prices by 10.6% by the end of 2023, with a smaller but non-negligible impact on global consumer prices of 1.5%. There is also a risk that shortages of certain key components, notably semiconductors, persist for several more months.
According to the latest data from Johns Hopkins University, 3.97 million new Covid-19 cases were reported worldwide between 25 November and 1 December, a 3.2% increase over the previous week. Increases were reported in Europe (+5.9%), Asia (+3.1%), South America (+3%) and Africa (+9.9%), where the sudden upturn in new cases is linked to the discovery of the new Omicron variant in South Africa. The new variant has now spread to 21 countries around the globe. North America, in contrast, reported a 6.1% decline in new cases. To date, 8.07 billion doses of the vaccine have been administered globally, including 250 million booster shots, which brings to 55% the share of the global population that has received at least one dose of the Covid-19 vaccine.
The ECB insists on the need for patience before considering a policy tightening, despite current elevated levels of inflation. It believes that inflation will decline next year and that a wage-price spiral is unlikely to develop. Moreover, inflation expectations remain well anchored. Demand in the euro area is suffering from the headwind created by the jump in energy prices. Reacting to this type of inflation by tightening monetary policy would create the risk of reducing demand even more. To avoid such an outcome, it makes sense for the central bank to wait for more information to arrive, thereby adopting a risk management approach of monetary policy
Some 3.82 million new cases of Covid-19 were recorded around the world in the week of 18-24 November, an 11% increase on the previous week. Europe and North America saw the biggest weekly increases, at 16% and 13.4% respectively, with Europe accounting for 61% of the world’s new cases, or 2.32 million new infections. In other regions, falls in infection numbers were reported in Asia, South America and Africa.
The curve of new Covid-19 cases is holding to an upward trajectory in most regions of the world. As to retail and leisure footfall, it is still trending downwards in Germany and Italy, at a much faster pace than in France, Spain or the UK. Belgium stands apart because its retail and leisure footfall has been relatively stable during the recent period. This is also the case for the United States, while in Japan, the trend has begun to decline again after several months of positive momentum. It is worth noting, however, that footfall is holding at high levels despite the resurgence of the pandemic in most of the main advanced countries.
At the closing of the COP26 on 13 November, the participating countries renewed their pledge to limit global warming to 1.5°C from pre-industrial times. In the run-up and during the conference, many countries promised to achieve zero carbon emissions by around 2050, although without proposing concrete measures.The International Energy Agency has estimated that, to achieve this goal, investment in global energy systems has to be expanded from an average of USD 2 trillion over the last five years to almost USD 5 trillion annually by 2030 and to USD 4.5 trillion by 2050
The number of weekly new Covid-19 cases in Europe continued to rise for the seventh consecutive week, with 1.7 million new cases reported between 3 and 9 November. Retail and leisure footfall is on a slight downward trend in Germany and Italy, and to a lesser extent in France, Spain and the UK, a development that could be related to the health situation in Europe, especially in Germany.
The global manufacturing PMI was up slightly in October despite a weakening in the US and a small decline in the eurozone. There was a noticeable decline in France whereas Italy moved higher. Japan also saw an improvement. The levels in the advanced economies remain very high whereas in the emerging countries the picture is more mixed. Worth noting is the improvement in India and the jump in Indonesia and Vietnam.
Having been in decline for around two months, the number of Covid-19 cases is rising worldwide. Three million new cases were reported between 27 October and 2 November, up 3.2% relative to the previous week. This concerns all parts of the world an in particular Europe, where the number of cases is climbing fast (+11.8%) (Chart 1): 1.54 million new cases out of a global total of 3 million have been recorded in Europe (51% of the total). The biggest number of new cases has been in Russia (281,042), while the UK has reported a total of 275,078, Ukraine 153,353, Germany 134,891 and Romania 73,463.
Our different uncertainty gauges are complementary, in terms of scope and methodology. Based on the latest readings, the ongoing divergence reflects the role of supply bottlenecks that confront companies with uncertainty in terms of delivery time, future production and the possibility to fill vacancies. Starting top left and continuing clockwise, economic policy uncertainty based on media coverage continues its decline. It is now back at a level last seen in 2018.
Although tensions in world trade remain fierce, there were some signs of easing in October. The Baltic Dry Index (BDI), which reflects the cost of maritime transport for dry bulk goods, declined by around 30% after peaking in the first week of October. Nonetheless, the rise in costs since the start of the year remains impressive, nearly a tripling. Looking more closely at October’s figures, we can see that the decline in the BDI was limited solely to very high tonnage container ships, while freight prices continued to rise for smaller vessels.
More than 2.85 million new Covid-19 cases were reported worldwide between 14 and 20 October, a 2.3% decrease from the previous week. This has been the smallest decline since August. All regions contributed to this drop with the notable exception of Europe, which reported an increase for the fourth consecutive week of 14.7% (chart 1). Of the 2.85 million new cases worldwide, 1.16 million were reported in Europe (41% of the total). The number of new cases was highest in the UK (295,643), Russia (211,841), Ukraine (102,564), Romania (100,733) and Germany (68,259). Vaccination campaigns continue to progress around the globe (chart 2), although the pace has slowed recently. Retail and recreation footfall barely exceeds pre-pandemic levels in Belgium and Germany
Although the significant increase in inflation in most advanced economies is expected to be transitory, it is necessary to focus on the potential consequences of inflation staying temporarily high for longer. Companies that hitherto have been reluctant to raise prices might do so after all, higher inflation could weigh on spending but also cause wage demands to grow, inflation expectations could drift higher, the market sensitivity to growth and inflation surprises would increase and there could be fears about a change in the reaction function of the central bank. In the coming months, investors and central banks will scrutinise data in parallel, but the former will react more quickly should inflation stay high.
The number of new Covid-19 cases around the world dropped below the symbolic level of 3 million in the week of 7 to 13 October, representing a 7% fall on the previous week. This fall was shared across all regions other than Europe, where case numbers climbed for the third week in a row. This increase has mainly been focused on Eastern Europe, the UK and, more recently, Germany. Meanwhile vaccination campaigns have continued to gain ground.
Successful market timing between equities and cash requires high skill levels. Very low official interest rates, through their impact on market rates, create a disincentive for doing market timing because they increase the break-even skill level. The same applies for quantitative easing. These considerations are important from a financial stability perspective. Growing investor reluctance to do market timing will probably lead to a decline in equity market volatility and an increase in equity valuations. The former provides a false sense of safety whereas the latter increases the sensitivity to negative news and hence increases the riskiness.
The world composite PMI hardly changed in September, despite a rather significant decline in the Eurozone, driven by Germany, Italy and Spain ; Japan and Russia edged higher. The world manufacturing PMI was unchanged in September. Supply chain disruptions and supply bottlenecks continue to weigh on activity levels.
The number of daily new Covid-19 cases reported worldwide continues to decline. Meanwhile, there has been a recent drop in visits to retail and recreation facilities in France, Italy, Belgium, Japan and the UK, but continued increases in Germany, Spain and the USA. It is worth noting that in Belgium such visits are still at their pre-pandemic levels, despite recent falls.
Recent data show business and consumer sentiment has peaked and real GDP growth is expected to slow down whilst remaining well above potential. A key factor in this respect is the self-reinforcing interaction between spending, company profits and employment, against a background of easy monetary and financial conditions. In using the popular metaphor, until recently, the economic sky looked quite blue but clouds have been gathering. The message of central banks should become a bit more hawkish, in the US, political disagreement influences the economic agenda of the Biden administration and China is going through a major adjustment phase
When the pick-up in inflation during a growth upswing is driven by the demand side, inflation is considered to be good. However, inflation can also be bad. In that case, higher prices do not follow from e.g. higher wages due to a tight labour market. Bad inflation rather reflects supply-side shocks. This is, to some degree, the situation that is unfolding in the Eurozone and other economies due to the recent huge increase of oil and gas prices. Bad inflation weighs on households’ real disposable income and hence spending. The impact is expected to be larger for households at the lower end of the income distribution, considering that a bigger portion of their expenditures goes to fuel and in particular heating, and that they also have a lower savings rate.
The Covid-19 pandemic continued to ease for the fifth consecutive week, with new cases down by 10.3% between 23 and 29 September, relative to the previous week (chart 1). This represents the biggest fall in case numbers since the end of August 2021. As far as visits to retail and recreation facilities are concerned, we have recently seen weaker numbers in some euro area countries.
Monetary desynchronisation between the US and the Eurozone seems unavoidable due to a very different performance in terms of inflation. Whether this will complicate the ECB’s task of reaching its inflation target depends, in the short run, on the impact on financial conditions in the euro area. This influence will probably be small. In the medium run, when the US tightening cycle is well underway, US domestic demand growth will be slowing down, which will weigh on imports and hence Eurozone exports to the US. This would complicate matters for the ECB if by then, inflation has not yet reached its target.
Our different uncertainty gauges are complementary, in terms of scope or methodology. Based on the latest readings, some divergence is developing. This probably reflects the role of supply disruption that is causing bottlenecks and, in certain countries, the rapid spreading of the Delta variant.
Most indicators confirm that world demand for industrial goods is still going strong, suggesting an accentuation or at least the continuation of the supply-chain problems currently facing many companies. Production pressures are compounded by transport pressures, which were showing no signs of easing in early fall.
The global Covid-19 pandemic continued to ease for the fourth consecutive week, with new cases down by 6% between 16 and 22 September, relative to the previous week. This downward trend was observed in all regions. Meanwhile, vaccination campaigns have continued to gain ground.
