World Economic Prospects Monthly

Abstract

Overview: Delta variant clouds the global outlook ▀ Although we have lowered our global GDP growth forecast for this year slightly from 6.4% to 6.2%, the near‐term outlook remains bright. The spread of the Delta coronavirus variant may complicate the return towards normality, but it remains a risk to our forecast, rather than a reason to make major adjustments to the baseline view. World growth is still seen at 4.6% in 2022. ▀ Timely activity data confirm that the global economy continues to grow at a robust pace. But we are probably now close to the point of peak growth and the recent fall in bond yields reveals growing pessimism within markets. In June, the global composite PMI fell, albeit from a high level, for the first time since January. Recent softer‐than anticipated data has led us to lower our US quarterly GDP growth forecasts for both Q2 and Q3. On a q/q basis we expect global GDP growth to peak in Q3. ▀ The key near‐term uncertainty is whether the spread of the Delta coronavirus variant will trigger another global surge in Covid cases, prompting delays or the reimposition of restrictions. Notably, cases are on the rise in highly‐vaccinated economies, such as the UK and Israel, where the Delta variant is now the dominant strain. However, vaccines have significantly softened the link between cases and hospitalisations, implying the surge in cases is less of a worry than in the past. ▀ Unless circumstances change, higher cases are unlikely to prompt a reimposition of the strictest restrictions to activity in economies with vaccine roll‐outs that are well advanced. The Delta variant is thus a bigger concern for economies where vaccination rates are much lower. ▀ Supply‐chain issues and pandemic‐related shortages continue to cause problems for certain sectors. In addition to denting output in some sectors, such as motor vehicle production, it has also promoted us to raise our CPI inflation forecasts for 2021 and 2022 slightly to 3.9% and 3.2% respectively, up from 3.7% and 3.1% a month ago.