Headwinds mounting for world economy into the final stretch of 2021
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The global economy is entering the final quarter of 2021 with a mounting number of headwinds threatening to slow the recovery from the pandemic recession and prove policy makers’ benign views on inflation wrong.
The spreading delta variant continues to disrupt schools and workplaces; US lawmakers are wrangling over the debt ceiling and spending plans; China is suffering an energy crunch and pursuing a regulatory crackdown, while markets remain on edge as China Evergrande Group struggles to survive.
Fuel and food costs are soaring worldwide, combining with congested ports and strained supply chains to elevate price pressures. Labour shortages continue to plague some employers.
Although the expansion seems intact, such a backdrop is fanning fears of a mix of weaker growth and faster inflation to come, threatening to complicate nascent efforts by central banks to dial back stimulus without rattling markets.
“Expectations of a swift exit from the pandemic were always misplaced,” said Frederic Neumann, co-head of Asian economic research, at HSBC Holdings Plc in Hong Kong.
China’s energy travails have forced manufacturers to curb production and prompted economists to cut their growth forecasts.
Bloomberg Economics expects the power shortages to have the biggest hit to expansion since a nationwide lockdown when the pandemic first erupted.
That’s compounding a drag from the crisis engulfing Evergrande, the world’s most indebted developer, and a broader slowdown in the all-important housing sector.
President Xi Jinping’s push for tighter regulations of industries including technology is also unnerving investors.
China’s energy problems also risk triggering a renewed surge in world agriculture and food prices as it means the country is set for a difficult harvest season from corn to soy to peanuts and cotton.
Over the past year, Beijing imported a record amount of agricultural products due to a domestic shortage, driving prices and global food costs to multiyear highs.
A United Nations index is up 33% over the past 12 months.
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The price of oil passed $80 a barrel for the first time in three years and natural gas is the costliest in seven.
TotalEnergies SE chief executive officer Patrick Pouyanne said the gas crisis that’s affecting Europe is likely to last all winter; it could get even worse.
Bank of America analysts are telling clients there is a chance of oil reaching $100, spurring an economic crisis.
With the northern hemisphere winter approaching, the delta variant remains another worry.
That helps explain why congestion is building at key crossroads for international commerce, from ports in Shanghai and Los Angeles to rail yards in Chicago and warehouses in the UK.
Retailers including Costco in the US are ordering everything possible to ensure shelves are stocked, particularly for the late-year boost of holiday shopping.
Dubai’s DP World, one of the biggest global port operators, expects bottlenecks that have rattled global trade flows will continue at least for another two years.
There is also a shortage of labour in some industries with the coming week’s US payrolls report providing an insight into how much of a problem that was for firms in September.
The shine is also coming off US economic policy as a locomotive for the global recovery.
While US president Joe Biden swerved a disruptive shutdown of the federal government for now through a stopgap funding bill, fractured talks continue on his $4tn (€3.4tn) economic agenda with deep divisions among his Democrats on the way forward.
Deutsche Bank AG strategist Jim Reid reckons the world economy may be facing its most hawkish period for monetary policy in a decade.
- Bloomberg