Yet more support is expected from ongoing government spending programmes in other richer countries, backed by prolonging co-ordinated monetary easing. Fed Chair Jerome Powell can take comfort that at least the IMF economics team are listening to him, even if the money markets are proving reluctant to do so! To be fair, it is hard to disagree with the IMF’s assumptions and, even if the vaccination programmes do fall short of expectations, it seems most governments really have more or less determined that the economic cost of yet more general lockdowns would be unaffordable. Frankly, the current measures, which are highly restrictive in many countries, seem increasingly like a ‘last chance saloon’!
As with all forecasters, the IMF economists are doomed to turn out wrong on the detailed numbers but their thoughts on direction and pace are usually worthy of attention. Table 1 below is taken from the IMF’s April Outlook in order to arrange the likely leaders and laggards among economies around the world.
It has been well publicised that China, Vietnam and (top of the class) Taiwan avoided recession in 2020. Perhaps more surprising are the others that also did so and were somehow relatively unaffected last year, directly or indirectly, by the pandemic. All these economies are forecast to experience growth in 2021 and 2022, albeit at different rates.
In the current year ,the IMF expects (Figure 3) the US economy to grow by a stunning 6.4% but even then to be outpaced by India (+12.5%), China (+8.4%) and Kenya (+7.2%). More surprising is the speed at which some of the poorer countries are expected to catch up and start generating new growth beyond the levels in Q4 of 2019.
Most of the rest of the world is forecast to be generating new growth by the end of 2022, including the Euro Area as a whole. Singapore. Canada and Germany are likely to get there earlier than the others.
Another surprise is to see so many oil-producing countries among the laggards and near-laggards. Mexico and the UAE have a good prospect of catching up by the end of 2022 but the UK and Spain will probably not make it until 2023.
So much for the forecasts, what about the actuals? Q1 GDP numbers will start rolling out in the next two weeks: Vietnam has already reported an encouraging +4.5% Y/Y and China may well beat that but most other economies will again be negative due to pandemic restrictions. The most significant recent data is a surge in hiring in the US as the vaccines are rolled out, which together with rising Consumer Confidence and buoyant Retail Sales, confirms that a boom really is imminent.
The key for all advanced economies, which is built in to the IMF and other forecasts, will be the resuscitation of Consumer Services. The March Purchasing Manager Services Surveys are especially encouraging for the US, UK and Australia (also China) while almost reaching in Japan and the Euro Area the ‘magic’ 50 mark that signifies expansion.
The Markit/JP Morgan Global Manufacturing PMI Survey has been scoring over 50 since last July and in March reached its highest level since February 2011. The strongest contributions came from Germany, Netherlands, the US and, intriguingly, both Italy and the UK. The scores from China have also been over 50 but have fluctuated much less, helpfully reminding us that all PMI surveys are unweighted and only compare the latest month to the previous one.
Accordingly, while the Surveys are usually reliable as leading indicators they can run ahead of the subsequent actual data. Right now this is the case with official Industrial Production numbers’ remaining stubbornly negative month after month, even in the US and Germany. Meanwhile, the good news for developing economies is the rapid recovery in global trade and the IMF global forecasts rely on a major contribution from China, if not as the main locomotive of recent years. Somewhat worryingly, however, sentiment in China is much more subdued among consumers, investors and the authorities with particular concerns over doubtful debts and worse.
Even the Fed is forecasting a boom (although it would never use such vulgar terminology) in 2021 in the US while doing its bit to support President Biden and former Chair Yellen by keeping monetary policy loose as it frets over structural unemployment and (say it soft) low pay. Even better, Mr Powell is not unduly concerned about inflation (PCE in Figure 4) and as a result remains determined, boom and all, to slow down market efforts to push interest rates higher. Ironically, cost-push inflation (energy and other raw materials) has already jumped in Europe and China and is roaring ahead in India, Brazil, Mexico and Nigeria.
Some of this can be expected soon in the US, Canada and the UK, but a big question mark remains over the extent of potential demand-pull inflation as pandemic restrictions are lifted. For the time being, ‘Goldilocks’ appears to be the driver of economic sentiment even if the pandemic is still keeping ‘Dr Pangloss’ at bay. However, even Goldilocks needs the vaccines to make global and national economies turn out ‘just right’ and one cannot help feeling some will turn out considerably ‘ just righter’ than others, whatever the IMF and Fed are currently forecasting.
