The pandemic recovery continues to pick up pace in economies around the world. However, there are still reasons to be cautious and signs suggest the pace of growth is beginning to slow in some regions.
According to the OECD (Organisation for Economic Co-operation and Development), the recovery is picking up for leading economies as vaccination progress means their lockdown measures are beginning to be eased. However, the IMF (International Monetary Fund) has warned that a failure to support poor countries fight Covid-19 could cost the global economy $4.5 trillion (£3.24 trillion) by 2025.
The UK’s economy continues to grow, but the pace is slowing. In May, the economy expanded by 0.8%, figures from the Office for National Statistics (ONS) show. This is weaker than the 1.5% expected and means the UK economy is still 3.1% below pre-pandemic levels.
One of the challenges the government now faces is repaying debt. To provide household and business support throughout the pandemic, the government borrowed at record levels. In July, government debt interest payments were a record £8.7 billion, around three times the amount paid just a year earlier. This is partly due to government bonds being linked to inflation, which has increased as lockdown measures have lifted.
The Office for Budget Responsibility stated that UK debt stock is increasingly exposed to shocks from both inflation and interest.
July’s Freedom Day, when lockdown restrictions lifted, led to a boost for hospitality, retailers, and pub chains. In line with this, the CBI (Confederation of British Industry) reported strong retail sales in July, with in-store transactions up 23%.
CBI figures also show UK factory output surging, with new orders reaching their highest levels since the 1970s. The IHS Markit PMI (Purchasing Managers Index) for the service sector was 62.4, a slight easing from the 24-year high recorded in May, but still strong growth.
One of the challenges businesses across many sectors identified is the “pingdemic”. With members of staff needing to self-isolate, some firms are struggling to continue operating even as restrictions lift.
Brexit also continues to have an impact on the UK economy. According to ONS, UK exports to the EU increased by £1 billion (5%) in the first five months of 2021. However, imports are still weak.
Chancellor Rishi Sunak also revealed that post-Brexit talks, centred on providing UK financial firms access to the EU, have stalled. He suggested that Britain would diverge from Brussels’ rules on financial services.
Figures from Europe are mixed, and Christine Lagarde, president of the European Central Bank, cautioned that the recovery in the eurozone remains fragile.
While the eurozone PMI composite hit a 21-year high of 60.6, placing it firmly in the growth zone, factory output dipped by more than expected. Industrial production fell by 1% in May, according to Eurostat, leading to questions around the strength of the eurozone recovery.
In other news, the EU has fined Volkswagen and BMW £750 million. The two motor companies were colluding with Daimler to delay emissions-cleaning technology, breaching EU antitrust rules in the process.
Signs suggest that the US economy is continuing to grow, but the pace is slowing down.
The latest PMI figures indicate that the boom seen as pandemic restrictions lifted is easing. The US recorded 59.7 in July in the PMI Output Index. While this is still in growth territory, it’s markedly down from the 63.7 recorded in June.
GDP figures also support this. In the second quarter of 2021, the US economy grew by 6.5%. While positive, it’s far below the Wall Street forecast of 8.5%.
However, job figures provide some positive news. At the beginning of July, the US reported 850,000 new jobs as American companies continued to take on more staff. The figure is a significant improvement on the 700,000 expected and points towards growing business confidence.