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Economic outlook: spring is in the air

4/9/2021

Economic statistics for the first part of this year are better than expected, including in Japan and the euro area. Moreover, this development is broadening in terms of sectors. Looking at business surveys, there is a growing feeling of beginning to “see the light at the end of the tunnel”.

TRANSCRIPT // Economic outlook: spring is in the air : April 2021

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FRANÇOIS DOUX

To analyse the global economy for the most advanced countries in 2021, we must look at three factors: their economic performance, the handling of the health crisis, and their recovery plans, which suggest that there might be a little inflation. To talk more about this, we are with William De Vijlder, our Chief Economist. Hello William.

WILLIAM DE VIJLDER

Hello François.

FRANÇOIS DOUX

Economic statistics for the first part of this year are better than expected. Could you talk in more detail about how you see this?

WILLIAM DE VIJLDER

Sure. We welcome this particularly favourable development. It was already clear in the US, where the economy had begun to recover. And before that, there was China’s spectacular performance. What we would like to underscore here is that signs of a recovery can also be seen in the European Union, and even in Japan, both of which had been lagging somewhat. We can see clear signs of improvement, not only in the manufacturing sector but in other sectors of the economy as well.

FRANÇOIS DOUX

Concerning the health crisis, earlier this year, or at the end of last year, you presented a chart showing the pace of vaccinations. Granted, we keep switching back and forth between vaccinations and lockdown restrictions. For the moment, however, the health crisis does not seem to have altered economic performances very much.

WILLIAM DE VIJLDER

I think we have reached one of those moments where we begin to “see the light at the end of the tunnel”. Companies seem to be increasingly certain that uncertainty will decline. In other words, in the very short term, we will continue to face very strict restrictions, which have even been intensified in some countries, like France. But at the same time, with the roll out of vaccination campaigns and effective lockdown measures, there is a feeling that we are nearing a tipping point: we are going to speak more and more about vaccinations and the number of people vaccinated, and less and less about the number of new cases.

Business leaders will begin to see that the glass is half full, and they will start to prepare for what comes next.

FRANÇOIS DOUX

And what comes next will be stimulated by the famous recovery plans that we have talked so much about in the advanced countries, both in the Eurozone and in the United States. As a result, uncertainty seems to be on the wane. I remember you once used a metaphor about a train. We are sitting in a train, heading towards recovery.

WILLIAM DE VIJLDER

The American train has clearly left the station, but we are not just in any old train, we are in a high-speed TGV train. This image of a TGV train also applies to the Eurozone recovery. For the moment, we are still sitting in the station, but we know that sooner or later, the train will begin moving.

We can more or less estimate when the train will leave the station. We can also be certain that as soon as it does, it will accelerate very rapidly, until it reaches a very fast cruising speed. I think that is what we can expect from the cyclical environment this year. For the moment, there is frustration over the number of new cases, new restrictive measures, and all. But at the same time, we know that things will get better, that the restrictions will be lifted and that the train will begin accelerating rapidly.

Looking forward, we foresee several quarters of growth that will largely surpass the long-term average.

FRANÇOIS DOUX

And yet, we must also pay attention to the possible formation of bottlenecks. We all saw how the blockage of the Suez Canal for a few days can have an enormous impact on international trade. But looking beyond this epiphenomenon, which did not last very long, there are other warning lights that could hamper the departure of our “recovery” train.

WILLIAM DE VIJLDER

Yes, that is a very pertinent remark. Indeed, we see all sorts of indicators. Numerous indicators show that things are going to get better in terms of growth and demand. But at the same time, we also see some warning lights, notably in terms of prices, such as input prices, which are rising the world over, at least wherever there are surveys. Prices are clearly rising rapidly. I think this is partly due to the profound disruption that we experienced in 2020, the supply-side disruption of the value chain.

For example, survey data on American companies shows that they have been facing a sharp rise in input prices. The more companies feel they are faced with such a situation, the more they say they intend to raise their own sales prices. The second half will be marked by an increasingly sharp focus on the dynamics of inflation, which could lead to some discomfort due to the bond market’s behaviour, which should lead to a gradual increase in long-term rates, even in the Eurozone.

FRANÇOIS DOUX

In other words, inflation is back, at least that is what the markets seem to be thinking. Thank you, William De Vijlder, for this update on the global economy. We will see you again soon on EcoTV. We will be back in a moment for the Chart of the Month with Stéphane Colliac. See you soon, William.

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