Following a very strong rebound from the COVID-19 crisis economists at Danske Bank see rising downside risks to global growth over the coming quarters.
Chinese growth risks have increased
“The Evergrande crisis is set to lead to weaker Chinese performance and we have revised down our GDP forecast for this year to 8.0% (from 4.5%) and to 4.5% in 2022 (from 5.0%).”
An energy ‘crisis’ is eroding purchasing power
“The sharp rise in gas and electricity prices we witness in Europe will lead to a longer period of high inflation in the euro area. If current levels of gas and electricity last throughout the winter, it could add around 1% to euro inflation, which will erode purchasing power among consumers. Oil prices have also increased more than expected, which will also delay the decline in US inflation, eroding the purchasing power of the US consumers.”
Covid herd immunity is not reached ahead of winter
“In the US it looks like only around 60% of the population will be fully vaccinated and in Europe, the number is around 75%. With the more contagious delta variant, most estimates of herd immunity are around 80- 90% and we could thus very well see new covid waves once the cold weather hits. While we don’t expect this to trigger new lockdowns it could still hit not least service consumption as unvaccinated people are likely to go less out during a covid wave.”
Higher inflation is tying policy makers’ hands
“The current inflation pressures will likely require that central banks proceed with tightening plans and we expect the bar to be high for the Fed to delay tapering. Given the stagflationary environment, there is simply less room for central banks to support growth.”
Supply chain disruptions continue
“Bottlenecks throughout the supply chains remain unresolved. In many Asian countries, covid waves have disrupted production and now that lockdowns are eased, many migrant workers in factories are returning back to their villages leaving labour shortages intact. Shortages of microchips also continue to be an issue for the car industry.”
