World Economic Prospects Monthly

Abstract

Overview: Service sector takes over the growth baton ▀ We have nudged up our world GDP growth forecast for 2021 to 6.4% from 6.3% previously and continue to expect a healthy gain of 4.6% in 2022. Our above consensus outlook for global economic growth both this year and next continues to be supported by recent activity developments. ▀ Recent news on Covid cases have been positive, as global case numbers are almost back down to their March lows, and economic data have continued to consistently beat economists' expectations on the upside. Business surveys indicate that the healthy rebalancing of the global economy away from manufacturing and towards services is continuing. The global services PMI remains comfortably ahead of the manufacturing headline index for a second consecutive month after rising in May. ▀ We continue to expect a strong global growth rebound in Q2 as the Chinese economy regains momentum and advanced economies benefit from a relaxation in activity restrictions and the resulting release of pent‐up demand by households. Non‐Chinese emerging markets are likely to see GDP growth slow in Q2 because of a surge in Covid cases, most notably in India, but growth should improve in H2. ▀ We have raised our CPI inflation forecasts to reflect the strengthening recovery, supply bottlenecks, and rising cost pressures. At a global level, we now expect inflation to average 3.8% this year, the strongest annual rise since the 2011/2012 period. ▀ Although there has been plenty of talk about a new inflation regime, we still think there is only a small chance of the current inflation pick‐up marking the start of a sustained period of high inflation. For most economies, we continue to believe the current rise in inflation is a response to temporary supply and demand dynamics that will start to subside as we move into 2022.