October 2021 update to TIGER: The global economic recovery is in danger of stalling

The world economy’s sharp snapback from the short-lived but deep COVID-19 recession appears in danger of stalling. The latest update of the Brookings-Financial Times Tracking Indexes for the Global Economic Recovery (TIGER) shows growth momentum weakening across the world, particularly in the two major engines of global growth—the U.S. and China.

 
Amid persistent concerns about the impact of Delta and newer variants of the coronavirus, supply-side constraints are tightening and rising inflation is becoming a significant restraint on policy support that could keep growth on track. The spike in energy prices is emblematic of the problems created by supply disruptions that could eventually hurt aggregate demand, particularly if central banks are forced to take more aggressive actions to contain inflation. In many countries, particularly the emerging markets and low-income economies, the 2020 recession continues to have scarring effects on GDP and employment.

The U.S. economy is at a difficult juncture, with uneven readings about the strength of both domestic demand and the labor market coming against the background of rising inflationary pressures. While an unemployment rate below 5 percent and labor shortages in some sectors signal labor market tightness, overall job growth has been muted in recent months. Consumer demand has remained strong, but erosions in business and consumer confidence could spell a softening of domestic demand. The two major spending bills before Congress are well-intentioned in their aims of raising long-term productivity but would boost demand and put further upward pressure on inflation in the short run. This, along with rising inflation expectations, could force the Fed’s hand and at a minimum lead to more aggressive tapering.

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Πηγή: brookings.edu