Interview, Other
Outlook for Global Growth: Less Synchronized, More Complicated
- Federal Reserve tapering of $120 billion in asset purchases is projected to begin in December following a November announcement, with a baseline pace of $15 billion per meeting expected to reach zero by October of the following year; a delay is possible if economic conditions deteriorate significantly.
- Rate hikes are theoretically possible by the fourth quarter of the following year if inflation and growth are significantly higher, though the first hike is currently projected for the third quarter of 2023, contingent on the economic outlook; liftoff could advance if spot inflation reaches 2.1% or 2.2% in late 2022.
- U.S. 2021 growth forecasts have been revised down to 6%, reflecting a peak in sequential growth that is now behind the economy, with subdued sequential growth of 1.5% to 2% forecast for the second half of 2022.
- Core PCE inflation is expected to reach 3.75% in 2021 before returning to 1.8% in 2022, while U.S. virus case rebounds in the service sector are expected to linger due to slow return-to-office activity.
- Payroll growth is expected to add 1.5 million jobs between September and November as federal unemployment benefits expire, driving a significant decline in the unemployment rate, though labor force participation will normalize slowly and remain below pre-pandemic levels for one to two years.
- Wage growth is projected to remain sustainable at rates exceeding the previous cycle due to productivity gains, with middle-income workers earning $25–$30 per hour seeing steady growth around 3.5% and low-wage sectors avoiding outright declines despite lower rates than the 25%–30% annualized pace previously seen.
- China's full-year 2021 growth is forecast at 8.2% to 8.25% (down from 8.5%), with third-quarter growth expected at 1.5% annualized due to zero-COVID restrictions, while Southeast Asia and Australia face downward pressure from outbreaks and lockdowns.
- Economic recovery in Europe is expected to remain strong through Q2 and Q3 despite outbreaks, the U.K. is projected to progress well despite high case numbers, and Latin America is expected to perform better due to generally lower virus counts.
- Global vaccination coverage is expected to reach 50% of the population by year-end, which is anticipated to significantly drive global economic improvement.
- Major risks include the emergence of more infectious or vaccine-escaping COVID variants and a substantial negative fiscal impulse as stimulative policies withdraw, which could alter the previously bullish U.S. growth outlook.