In focus

Economic and Strategy Viewpoint - September 2021


  • We still expect a robust recovery in the world economy, but the outlook has moved in a stagflationary direction as growth momentum fades and price pressures rise. Our forecast for global GDP growth is unchanged, but we are raising our inflation projections.
  • The initial acceleration stage of the recovery is over and we are in a new phase where supply constraints are having a major impact on the cycle.
  • There are important regional variations in the growth forecast, with downgrades to the US and China offset by upgrades to the UK, eurozone and Japan. For the first time since 2007 we expect European growth to be ahead of the US in 2022.
  • We still expect the Federal Reserve (Fed) to start to taper asset purchases in December and raise interest rates at the end of next year. There is a case for a faster tapering of policy as there seems little point in stimulating demand in an economy suffering from supply side problems. However, the Fed is likely to tolerate the higher inflation that this brings.
  • Although we have raised our growth and inflation forecasts for the eurozone, we don’t expect the European Central Bank to tighten policy until 2023. Only then will inflation be sustainably at or above the 2% threshold now needed to prompt the central bank to act. We also expect the Bank of England to be on hold until 2023. These moves support a stronger dollar over the forecast period.
  • Our outlook for emerging market GDP growth is shaped by China, where bottlenecks and Covid restrictions prompt a downgrade for this year to 8.5%. More mild easing of policy is likely to be announced in China, but in the absence of larger stimulatory measures we continue to expect GDP growth to decelerate to around 5.5% in 2022.
  • Although there are risks of stronger growth, the principal threat to our forecast is that the world economy remains constrained for longer by shortages of labour and components, an outcome captured by our supply side inflation scenario. Stagflationary pressures could also be raised by an increase in tariffs, potentially linked to attempts to control carbon emissions after COP26.

The full Viewpoint is available as a PDF below.

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Economic and Strategy Viewpoint - September 2021 18 pages | 447 kb

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