Global Growth Outlook 07/2021: Upturn – Bottlenecks – Inflation

February Juni 2021 2022 GLOBAL GROWTH OUTLOOK

Upturn – Bottlenecks – Inflation Global economy in Covid cycle

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Global economy is expected to continue its upward path this year and grow by four percent. The pandemic is still causing disruptions albeit on a slightly smaller scale.

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Global trade is set to expand by a marginally higher five percent.

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Growth in the United States and in the Euro area are anticipated at a moderate 3¾ percent, as long as the current wave of the pandemic is contained without causing major economic disruptions. In China, consolidation will once again give way to expansion with the Chinese economy anticipated to grow 5¼ percent in real terms.

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Bottlenecks in supplies will continue to plague many segments in the first six

Diemonths amerikanische Lokomotive der Weltwirtschaft of the year at least before easing up gradually.

High demand from summer onwards fuel a pick-up in production.

Aufschwung im will Norden, Risiken im Süden ▪

The pandemic has caused inflation to spike in the United States and the Euro area while only rising marginally in Asia. Inflation in the United States has been stoked further by fiscal impetus. Central banks are tightening up their monetary policy, with the Federal Reserve and the Bank of England leading the way.

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Global fight against the pandemic far behind schedule, which is too slow as it is, particularly in developing countries. This harbours permanent risks for global recovery.

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German economy is expected to grow by 3½ percent. This forecast is based on the assumption that the pandemic will not cause major disruptions in demand, transport and logistics in our trading partner countries.

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

Content Global economy in the stranglehold of the pandemic .................................................................... 3 Global economy continues catching up on growth ........................................................................ 6 Highly dynamic inflation rates ......................................................................................................... 13 Financial markets .............................................................................................................................. 16 Global industrial production: Recovery losing steam .................................................................. 18 Global trade and foreign direct investment .................................................................................... 20 United States: Upswin loses momentum ........................................................................................ 21 China: Slowing growth and turbulences on the property market ................................................ 24 Euro area and the EU ........................................................................................................................ 27 Supply bottlenecks stifling German industry ................................................................................. 28 Germany ............................................................................................................................................. 31 International coordination helpful to overcome pandemic ........................................................... 32 Sources .............................................................................................................................................. 33

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

Global economy in the stranglehold of the pandemic Unfortunately, the long-held hope that the pandemic in industrialised countries would largely be contained by autumn 2021 has not materialised. The pandemic has not yet transitioned into an endemic. This could happen in 2022 as long as no new virus variants surface that considerably reduce the effectiveness of the available vaccines. The global economy is therefore still operating on very uncertain ground.

Europe and the United States experiencing a fourth and fifth wave Global economic development throughout the last year was dominated by major economies struggling to overcome the impact of the pandemic. Public health measures nonetheless lost momentum in most countries over the summer months. More than 310 million cases of Covid have been recorded around the world so far. Five and a half million people have died from the disease. The number of newly reported cases globally reached well over four million a week at the peak of the third wave in the middle of August, before falling gradually until the beginning of October. In autumn and with the onset of winter, new cases started surging again, exceeding 15 million per week by early January. The latest wave of infections started off almost exclusively in Europe (which accounted for 67 percent of new cases worldwide in late November), while the number of new cases remained steady on the American continents, rose moderately in Africa and declined in the other regions of the world. From the middle of December, cases also started rising sharply in the United States, in Southern European countries, which had successfully stemmed new cases until the autumn, and in Africa, propelled upward by the Omicron variant. China has so far managed to keep the pace of infections under control by retaining stringent measures and with a fast vaccination rollout. Japan had a weak start in public health policy but picked up the pace in the course of 2021, stepping up both vaccination rates and public health measures. Overall, the rate of infections is expected to be very dynamic in North America and Europe in the first quarter, while the new variant has not yet become established in the major Asian countries.

Global vaccination rollout still inadequate As things stand, it is unlikely that current vaccination strategies and international efforts will be enough to stop a fifth wave in spring. The Omicron variant will fuel the rate of infections in all countries that fail to close the gap to herd immunity quickly enough by stepping up vaccinations and boosters. A few countries in Southern Europe may be in a position to achieve this while the rest of the world is not likely to be spared on account of low vaccination coverage and declining vaccine efficacy (in China and emerging countries such as Turkey and Brazil that are mainly using Chinese vaccines). Omicron presents a very high risk particularly to India where vaccination coverage is simply too low (Deutsche Bank 2021).

Aid for developing countries through COVAX is behind schedule The world is well behind the IMF/WHO/World Bank/WTO timeline for combating the pandemic on a global scale with supplies of vaccines for developing and emerging countries far behind those pledged through the COVAX initiative (only 1.4 of two billion doses pledged for 2021) (Council of Economic Experts 2021). The timeline calls for at least 40 percent of the population in all countries to be vaccinated by the end of 2021 and 70 percent by the middle of 2022 alongside an adequate provision of therapeutics and diagnostics. Half of these countries are likely to fall short of the 40 percent target.

Low-income countries have a vaccination coverage of under five percent (IMF 2021). Only just over

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

20 percent of vaccine doses necessary to meet the target have been received. The production of approved vaccines should pick up considerably this year with just over six billion doses expected.

Pandemic prevention measures below what is needed Most countries around the world have not made the progress in terms of public health that would have been possible and necessary in 2021. Above all, vaccination coverage is too low everywhere, far below what would be required to stem the pandemic. Although vaccination rates had risen substantially by the fourth quarter to average 60 percent in the major industrialised countries and a very few developing countries, less than 40 percent of the population in developing and emerging countries are fully vaccinated. This represents a risk both for public health in these countries and for the whole world. The danger of new mutations remains high.

Europe and the United States have also not managed to get the situation under control. If we add the good nine percent of the population in Europe and 19 percent in the United States that have recovered from Covid to the proportion that have been vaccinated, there is still a large gap to reach the required coverage of 90 percent of the population. There are big differences among the larger industrialised countries. In terms of first doses, China, Korea, Spain, Japan and Italy are a good ten percent above Germany. France, Brazil and the United Kingdom are all at over 75 percent, while Germany and the United States are at around 70 percent. Among the major emerging countries, Brazil, India, Indonesia, Mexico and Turkey all have a first dose coverage of over 50 percent.

Vaccination coverage in percent (proportion of population)

fully vaccinated

first dose

China South Korea WHO SpainRegion Italy Japan France Brazil U. Kingdom U. States Germany Turkey India Mexico Indonesia Russia

Source: Our World in Data

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

Number of cases(IWF confirmed daily, in millions US-Dollar 2021c).

10

WHO Regions American Region European Region South East Asia Region Eastern Mediterranean Region

5 Western Pacific Region

American Region

African Region

January 2020

European Region South East Asia Region Western Pacific Region Eastern Mediterranean Region African Region 0 July 2021 January 2021 July 2020 January 2022

Source: WHO

Renewed restrictions in Europe The emergence of the Omicron variant has fuelled the rate of infections around the world. It looks like additional economic loss through the current wave and probably the next foreseeable wave in spring can no longer be prevented, particularly in Europe. Restrictions in Germany have been successively tightened throughout the autumn with the number of new cases rising continuously. France has been hit by a much higher wave of infections since November and has also tightened up restrictions, as has Italy. Spain is also recording very high infection rates. The United Kingdom has recorded a high level of infections since June with very few restrictions in place and cases spiking further since December.

The uptrend of new cases in Poland remains moderate.

Stringency values of public health measures in selected countries 120 100

100

80

80

60

60

40

40

20

20

0

0

China Japan Russia

USA Brazil India

Germany Italy U. Kingdom

France Spain Datenreihen6

Source: Quelle: Hale, Thomas, Sam Webster, Anna Petherick, Toby Phillips, and Beatriz Kira (2020).

Oxford COVID-19 Government Response Tracker, Blavatnik School of Government.

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

Strong wave in North America, more favourable situation in Asia The situation remains even more unclear on the American continents. In the United States, 61 million people have recovered, and the number of new cases remained relatively stable at around 700,000 new cases per week until the middle of December before surging to over four million cases per week in early January. The public health policy at the federal level has stagnated while many individual states and cities have stepped up their measures. In Canada, new cases shot up in December. The number of new cases also surged in Mexico in January but not quite as dramatically. China still has in place among the most stringent restrictions in the world. Japan, Brazil and India took a satisfactory approach with medium-level restrictions until December. New cases in Brazil and India have started to rise rapidly in the last four to six weeks so both countries will have to step up their response soon. For the major developing countries, Omicron represents a large risk to both public health and the economy.

Global economy continues catching up on growth The overall uncertainty surrounding the developments of the pandemic make it exceedingly difficult to predict global economic development in 2022. Global economic output is estimated to have increased by a good 5.5 percent in 2021. Output rose by around five percent in industrialised countries, and by over six percent in developing and emerging countries. Global economic output was already back to pre-pandemic levels in summer 2021. Economic recovery will continue in 2022, although public health measures will curb growth at the beginning of the year at the very least. We expect the global economy to grow by between four and 4.25 percent in 2022. In our opinion, the official forecasts in the main scenarios are too positive, (IMF: 4.4 percent, OECD: 4.5 percent, European Commission: 4.5 percent), with pandemic-related restrictions to economic activity barely factored in at all.

Dynamic demand for goods bumps up against supply shortages In the first three quarters of 2021, global economic recovery slightly exceeded forecasts made at the start of the year. Responsible for the good performance were several factors, among them the base effect of the pandemic, a strong fiscal and monetary policy response in major economies, and the declining rate of new infections. A general trend in global demand is a shift from services, including travel, to goods such as home working equipment. This shift, along with a whole series of other factors, has led to substantial supply-side bottlenecks (e.g., commodities, metals, intermediate goods, semiconductors, container ship capacities). These bottlenecks have caused a surge in the relative prices of these goods which is driving up monthly inflation rates. The resurgence of the pandemic in many countries in the fourth quarter will now counteract this trend and curb activity once again, which will go some way to ease both the chokepoints and the upward pressure on prices. At the same time, pressure on the supply side will gradually drop as energy commodities become more readily available from the second quarter 2022 onwards, with many intermediate goods following suit in the further course of the year. The shortage of semi-conductors will only ease up very gradually until 2024.

Global automotive production takes a battering Global automotive production followed a different trajectory. Performance in the first three quarters of 2021 was unexpectedly poor. Global sales plunged 20 percent between April and September alone, by 40 percent in the United States and Japan, and by 16 percent in Germany. Production in the first three quarters of 2021 was 26 percent down on January 2019 levels in the Euro area, 30 percent down

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

in Germany, ten percent down in the United States, and 23 percent down in Japan. In September, production and sales in Germany were more than 40 percent below January 2019 levels. The semiconductor crisis has badly affected automotive production around the world and in Germany in particular. Value added was more than 50 billion euros lower than at normal production levels (OECD 2021).

Economic risks abound The possible disruptions and downward risks for global economic recovery in 2022 are very serious indeed. While impossible to quantify with any precision, they could certainly reduce performance considerably. First, Omicron and the possible emergence of new virus variants could trigger a new resurgence of infections in 2022. Second, any resurgence could well lead to renewed temporary shutdowns of production facilities and infrastructure, above all in China. Third, if more stringent health protection measures are reimposed, they would again lead to a shift in demand and, consequently, to bottlenecks. Fourth, geopolitical risks such as a war in Ukraine and disputes in North-East Asia would lead to an increase in risk aversion in general and cut down investment activity around the world. Fifth, it is difficult to anticipate whether the United Kingdom wants to bring the conflict with the EU to a head, which would cause new disruptions in our trade relations. Sixth, any tightening of monetary policy by the Federal Reserve in the United States generally harbours economic risks for the world no matter how necessary it may be. Seventh, the pandemic has made its mark on the labour market, exacerbating shortages of labour in certain high-contact occupations and skilled labour in individual, specialist fields that were already strained before the pandemic.

Labour markets not yet fully recovered All these factors are weighing down on the global economy which is not yet fully recovered from the Covid shock, particularly the labour markets. In the OECD alone, 7.5 million individuals less were in employment in the third quarter 2021 compared to the end of 2019. The number of hours worked is still two to five percent below normal levels in most countries (OECD 2021: 14-15). Mobility in industrialised countries followed the same trend, with retail and recreation a good five points below normal levels since the summer. OECD expects employment to get back to pre-pandemic levels by the end of this year in most countries, although it may take longer in the United States. Migration flows should also return to normal levels in the medium term. During a transitory period, labour shortage and above-average wage increases are probable, particularly in high-contact jobs and in healthcare.

Overall, the last two years have seen weak wage dynamics, with nominal wages set to rise modestly and real wages turning up again by 2023 at the latest.

Pace of recovery remains highly divergent The outlook for the next year is very mixed. Some countries have already managed to make considerable progress, getting back to pre-pandemic levels in 2021, and many more countries should follow in 2022.

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

Index development of real GDP 102

116

110

101 100 India

101

111 Germany China

98

105

98 95

USA

Japan

106

102

96

100

102

95

100

102 97

97 101

Euro area

2021

102

101 Brazil

96 93

90

93 2020

102

U. Kingdom

98

2019

Russia

2022

2019

2020

2021

2022

2019

2020

2021

2022

Sources: IWF, own calculations

Growth of real gross domestic product in 2021 compared to previous year (in percent)

Global economy

+4.0

Euro area

+3¾

World trade

+5.0

EU

+3¾

United States

+3¾

Germany

+3½

China

+5¼

Japan

+3½

Source: BDI

Purchasing managers still positive The indicators for the near future are currently signalling a continued expansion of activity. While the OECD economic climate indicators are trending sideways overall, consumer confidence has dropped considerably since July. The global purchasing managers’ index, on the other hand, has risen by a good two index points since the summer, due above all to a robust increase in services. The latest figures show services dropping back down to 54, with manufacturing trending sideways at 54. The most recent figure for Germany is weak. In the United States, the individual indices have stabilised at around 57 to 58 in the last two months indicating strong expansion. In the Euro area, the overall index dropped to 53 most recently, with the index for services and construction activity falling and the index for manufacturing remaining constant. In Japan, the indexes rose out of recession in August to good values of 53 (overall index and services) and 54 (industry). China has had a turbulent year, but the overall index is still in positive territory (51), with industry languishing at the stagnation level for quite some time (50) and services just clinging on to the expansionary side (52). The figures here had risen slightly at last count.

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

Purchasing Managers` Index* World 60

50

40

30

20 Manufacturing PMI

Services PMI

Composite PMI

*PMI Source: Market Source: Macrobond

Purchasing Managers` Indices* 70

75

Euro area

Germany

65

60

55

50

45

40

35

30

25

20

15 Jan 20

Jun 20

Jan 21

Jun 21

Dec 21

10 Jan 20

Jun 20

Jan 21

Jun 21

Dec 21

Manufacturing PMI Services PMI Composite PMI

Manufacturing PMI Services PMI Composite PMI 75

China

60

USA 65

55

50

55

45 45

40 35

35 30 25 Jan 20

Jun 20

Jan 21

Jun 21

Manufacturing PMI Services PMI Composite PMI

Dec 21

25 Jan 20

Jun 20

Jan 21

Jun 21

Dec 21

Manufacturing PMI Services PMI Composite PMI

*PMI Source: Market Source: Macrobond

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

Economic sentiment indicators*, OECD 103 101 99 97 95

93 91 Business Tendency Surveys (Manufacturing)

Consumer Opinion Surveys

Leading Indicator

*seasonally adjusted (index=100) Source: Macrobond

Engine of growth remains the United States, followed by Japan and Europe The United States will continue to be the strongest driver of economic growth in the current year.

Growth last year is estimated at 5.75 percent and is expected to reach 3.75 percent this year (IMF predicts 4 percent growth for the US, European Commission 4.5 percent, and OECD 3.7 percent).

Despite a steady high rate of infections, with the seven-day incidence rate peaking at 440 in September and, at the time of writing, at just over 200, public-health restrictions last year were very low.

Japan’s economy has most recently recorded a weaker period. Japanese consumers have held back throughout the pandemic. After just 2.5 percent growth last year, fresh economic stimulus from the new Japanese government should push growth up to 3.5 percent in 2022. The primary factor fuelling this growth will be the massive fiscal package of the new government headed by Fumio Kishida. With a volume of more than nine percent of economic output, the package includes financial aid for small and medium-sized enterprises, tax relief for companies in general, cash handouts to private households, and higher wages in the public sector.

The EU and the Euro area experienced a surprisingly strong recovery. Both economic regions are estimated to have grown by five percent in 2021. Forecasts for the current year mostly range between 3.9 and 4.5 percent. However, these forecasts were made before the outbreak of the fourth wave. It is probable that at least moderate restrictions to economic activity will be needed until into the second quarter. This will put a damper on private consumption and prolong the recovery of investment levels in the major economies. As things stand, it is impossible to predict with any accuracy whether and to what extent new fiscal policy measures will become necessary. Growth in 2022 is therefore more likely to be 3¾ percent, and that only if the Omicron wave can be contained in good time with only moderate restrictions to economic activity. If tougher measures become necessary until the summer, the economy will slide into another technical recession in the first six months of the year and shave one to two percent off growth in the course of the year.

China has definitely met its unambitious target of at least six percent in growth in 2021, with growth estimated at around eight percent. In 2022, the pace of growth should drop back to a more normal

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

level of 5¼percent. China is currently undergoing a normal correction of its property market which generally curbs activity for four to six quarters. The Communist Party of China is currently refraining from undertaking tough fiscal or monetary measures, instead communicating a new qualitative approach (i.e., no support for the property markets during correction phases). The most recent decisions of the Communist Party of China even indicate a switch back to minor stimuli.

Forecast summary: Growth in real GDP 2021/2022 in percent 2021

2022

EUCOM3

IMF1

5.64

5.7

4.4

4.54

4.5

5.6

5.6

5.8

4.0

3.7

4.5

China

8.1

8.1

7.9

4.8

5.1

5.3

Japan

1.6

1.8

2.4

3.3

3.4

2.3

IMF1

OECD2

World

5.9

USA

EU

OECD2

5.0

EUCOM3

4.3

Euro area

5.2

5.2

5.0

3.9

4.3

4.3

Germany

2.7

2.9

2.7

3.8

4.1

4.6

France

6.7

6.8

6.5

3.5

4.2

3.8

Italy

6.2

6.3

6.2

3.8

4.6

4.3

Spain

4.9

4.5

4.6

5.8

5.5

5.5

U. Kingdom

7.2

6.9

6.9

4.7

4.7

4.8

India

9.05

9.4

9.0

9.05

8.1

7.8

Brazil

4.7

5.0

4.9

0.3

1.4

2.1

Russia

4.5

4.3

3.9

2.8

2.7

2.6

1: IMF (January 2022) 2: OECD (December 2021), Forecast for India for fiscal year beginning April 3: European Commission (November 2021) 4: Forecast on basis of 70 percent world GDP (PPP of 2013) 5: Information on India for the fiscal year in current prices

The economic trends in the other major industrialised countries still show a solid recovery. Growth in the United Kingdom is estimated at a very strong seven percent in 2021 and forecast at a good five percent in 2022, Canada 5.5 percent and four percent, and Australia and South Korea with four and three percent respectively in both cases. Taiwan and Singapore are likely to have grown just over six percent in 2021 and are heading for a good 3.25 percent growth in the current year. Growth in Russia is likely to drop to just over three percent. The economy in Turkey is floundering with red hot inflation

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

and a lira crisis and is only likely to reach the growth rate of three percent expected by the IMF if the central bank takes countermeasures.

Regional outlook: Developing and emerging countries return to solid growth Economic recovery in the developing and emerging countries was slightly more pronounced than expected in 2021 even though the pandemic brought with it considerable problems for these countries.

The risks for growth in 2022 remain exceedingly high on account of the limited resources these countries have for vaccinations and therapeutics. In general, commodity-exporting countries will continue to benefit from the strong demand for commodities for quite some time even though demand has probably peaked.

Overall growth in the developing countries in Asia is expected to be at close to six percent, the five ASEAN countries should also grow at this rate. Growth in India, after falling sharply, is estimated to have climbed back to eight percent in 2021 and should remain at this level in 2022 as long as Omicron remains under control.

Regional economic outlook*

2021

2022

Europe, advanced and developing economies

6.0

3.5

Middle East, Central Asia

4.1

4.3

Israel

7.1

4.1

Sub-Sahara Africa

3.7

3.7

South America

6.3

2.3

Central America

7.7

4.6

Caribbean

3.6

11.3

Asia, advanced and developing economies

7.2

. 5.9

*Growth of real GDP over previous year in percent Source: IMF (October 2021, January 2022)

On the other side of the Pacific, Mexico should grow by about three percent this year following strong growth of 6.2 percent in 2021. South America’s economic output should grow by 2.25 percent, with western countries performing better than the eastern countries. Brazil, the biggest economy on the continent, is only expected to grow by a meager ¼ percent. Argentina and Chile could manage 2.5 percent growth with smaller economies such as Uruguay, Paraguay, Bolivia and Ecuador expected to grow by more than three percent, Bolivia by four and Peru by 4.5 percent. Venezuela is in for another decrease, this year by around three percent. The Central American countries should grow by 4.5 percent, and the countries of the Caribbean by as much as eleven percent.

The Middle East, North Africa and Pakistan should again reach a good four percent growth alongside Israel, the Caucasus, and Central Asia. Sub-Saharan Africa should be able to keep growth

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

at its 2021 level of 3.75 percent in 2022 as long as the pandemic does not result in any major disruptions. South Africa fared much better than expected throughout the pandemic in 2021 (up five percent) and is expected to grow at a more moderate rate of two percent this year. Nigeria is again set to grow by 2.5 percent this year.

Highly dynamic inflation rates Global inflation trends are under the predominant influence of the pandemic. While industrialised countries recorded an inflation rate of only 0.7 percent in 2020, it climbed to well over three percent in 2021. Momentum in inflation should ebb slightly in 2022 with IMF expecting inflation of just over 2.5 percent and the OECD expecting 4.2 percent for a similar group of countries (OECD 2021). Inflation in the emerging countries has not changed as much with inflation expected to stay high at close to six percent (IMF 2022).

Inflation trends and monetary policy highly divergent In recent months, the pace of inflation has continued to pick up in Europe and in the United States, while remaining low in the major Asian countries. The central banks in the United States and in European countries have been caught by surprise by the force of this upturn, the continuing bottlenecks in various industries and several one-off factors, as have the markets that have had to constantly upwardly revise their forecasts. Inflation has reached levels not seen in more than 20 years and has consequently sparked public debate about the resulting risks, particularly in Germany. The major central banks have had to increasingly justify their expansionary monetary policy and gradually turn the lever back to a tighter course. In other countries, particularly in China and Japan, inflation has remained low due to the economic slowdown. Some industrialised and emerging countries have already responded to the temporary pressure by tightening up their monetary policy, including Australia and New Zealand, Brazil, Russia and South Korea, as well as some eastern European countries (Poland, Hungary, Czech Republic). The picture remains mixed.

Inflation surges in United States and Euro area The increased upwind in prices in North America and Europe continues to be dominated by the yoyo effect of the upturn in the wake of the pandemic, the structural shift in demand from services to goods, several temporary factors on the energy markets (with a short-term impact on inflation) and extraordinary factors related to the pandemic such as the closure of ports, the blocking of the Suez Canal by a transverse container ship, and the logistic chaos in container shipping, particularly in California. The situation has been exacerbated by strong global demand, supported by expansionary monetary and financial policy, especially in the United States. The economic policy decisions of some countries also contributed to the overall momentum, such as the six-month reduction in the valueadded tax rate and the introduction of a national emissions trading scheme in Germany, as well as the expiry of individual labour market measures in the United States. Most one-off factors will subside in the coming year, with only the semi-conductor crisis likely to last until into 2023.

Inflation in the United States addressed with monetary policy response In the United States, the trend in inflation over the last two years has sparked a major debate on monetary policy since the summer. Dominant in the debate is the question of whether the pressure on

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

prices is only temporary and therefore be ignored or whether it is a stronger and broader trend that requires a response. The prevailing opinion is that the Fed is responding too late. Monetary policy is now in tightening mode.

In December last year, the United States central bank tightened its monetary policy to counteract the broadened upward trend in prices. The Fed accordingly decided to dial back its bond purchasing programme by 30 billion U.S. dollars a month. With this step, the Fed closed the debate on whether the pressure on prices is temporary or not and has moved its focus to achieving the second target alongside inflation, that of maximum employment. Based on statements by the Fed, the target for employment (bringing down the unemployment rate to 3.5 percent) is expected to be reached in the course of the year. Furthermore, the median expectation among Federal Open Market Committee’s (FOMC) members of interest rate raises increased substantially, rising from 0.3 percent to 0.9 percent for 2022, from one percent to 1.6 percent for 2023 and from 1.8 to 2.1 percent for 2024 (Fed 2021). At the same time, the Fed has increased its inflation forecast for the Personal Consumption Expenditures Price Index in 2021 by one whole point to well over five percent (5.3 percent), while dropping expected growth for the year by half a point (to 5.5 percent). For the current year, on the other hand, the Fed has upped its growth forecast slightly to four percent, with inflation expected to be at 2.6 percent and a higher core inflation of 2.3 percent. The market is therefore anticipating a termination of the purchasing programme as early as March 2022 and, on average, three interest rate hikes of a quarter percentage point each in the current year, with further raises expected until 2024/25, to bring the key interest rate to just over two percent. The Fed will naturally take action based on how the figures develop and factor in any negative effects caused by rising infection rates.

Factors playing into the inflation equation in the United States include the catch-up and base effects fuelling energy and commodity prices, the semiconductor supply problems (which implicitly affect the price trends of used vehicles) and statistical one-off effects as well as an overstraining of production potential triggered by the expansionary financial policy approach of the Biden administration. The expectation of some leading Democrat economists that the mix of pandemic effects, supply problems and expansionary demand from the public sector will trigger inflation levels that need to be tackled by a monetary policy response has therefore proved accurate.

ECB carefully reverses to tighten monetary policy The European Central Bank also tinkered with its prediction of growth and inflation going forward and its monetary policy in December. The ECB is now forecasting growth in the Euro area of 4.2 percent in 2022, and inflation of 2.6 percent in 2021 and 3.2 percent in 2022 (ECB 2021). It has raised its forecast for inflation substantially, upping it by one and a half points for the current year. The ECB now also predicts a harsher pandemic scenario with growth in the Euro area of only 1.5 percent in 2022 (2.2 percent and 2.5 percent for 2023/24) and inflation of 3.1 percent for the current year before dropping down to 1.4 and 1.3 percent in the following years. The key interest rate according to the main scenario of ECB will remain below two percent throughout the whole projection period of three years.

As expected, the ECB has decided to terminate net purchases under the Pandemic Emergency Purchase Programme PEPP in March. At the same time, the maturing principal payments will be reinvested until the end of 2024, one year longer than previously planned. It will adopt a flexible approach in order to retain the option of making net purchases of Greek government bonds if necessary. Furthermore, the volume of the Asset Purchase Programme (APP) will be increased from

14

Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

20 to 40 billion euros in the second quarter and to 30 billion euros in the third quarter. From October, plans are to continue purchases to the volume of 20 billion euros as long as the monetary policy support is required. The ECB’s decision also included an indication that it would terminate the third series of targeted longer-term refinancing operations, TLTRO III, in June.

Inflation trend as dynamic as it is unexpected The ECB has also come under pressure in public debate sparked by the monthly inflation rate figures.

The level of inflation recorded for the Euro area overall in November 2021 year on year was 4.9 percent, far exceeding its record level of 2008. The three-month average (September to November) for inflation was at slightly over four percent. For Germany, the Bundesbank expects an increase in consumer prices (HICP) of 3.6 percent in the current year and a lower 2.2 percent for 2022 and 2023.

Assumptions are that the inflation rate peaked in December last year (Deutsche Bundesbank 2021).

Alongside the same base effects as in the United States, the prices of energy, commodities and intermediate goods, and the tax and climate protection measures in Germany, other factors at play in the Euro area additionally stoked the latest spike in inflation. The statistical adjustment of the basket of goods reinforced the price increase measured by a few tenths of a percentage point. Core inflation (excluding price trends in energy and foods) was much lower although it also rose steeply, climbing to 2.6 percent in November. The three-month average was at around two percent.

Energy prices fuelled by many one-off factors Energy prices continued to rise until October, when some prices began to fall before increasing again from the middle of December onwards. The price of oil has returned to pre-pandemic levels which means that it has more than doubled since June 2020. The gas price on the spot market has risen dramatically. The price of coal has increased eightfold. On the oil market, production cuts by OPEC, frost in Texas in February 2020, and hurricane Ida in August all limited supply. Similar one-off effects cut coal output by five percent. Developments on the gas market have been dominated by five factors: high demand for LNG in China and South America, the harsh winter 20/21, depleted stocks in summer (about 50 percent of the normal level), restocking in Russia and a lull in the EU in 2021 (consequently gas required for electricity generation). Rising energy prices are additionally driving up import and consumer prices. The markets are expecting prices for both Brent crude and WTI crude to drop substantially in spring 2022. The gas market is expected to remain tight for several months.

Bottlenecks in supplies escalating producer prices Supply-side bottlenecks have also pushed input and producer prices up, exacerbating general price trends. Meanwhile, over 90 percent of companies (in Germany) have been affected by rising input prices which is also lifting producer prices. Producer prices increased more than they have for a long time at last count, with increases well into double digits for the Euro area, the highest rates recorded since the data series began in 1996, while in Germany the increase of over 15 percent is unparalleled since the 1970s. The increase in producer prices drives up consumer prices and the general rate of inflation as producers cannot absorb the increased costs exclusively by decreasing their profit margins.

15

Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

Inflation forecasts now slightly higher Until now, several indicators for medium-term inflation prospects have increased slightly but have not yet reached a critical level. Medium-term inflation expectations recently approached the target of two percent. Market participants do not therefore expect any permanent or disproportionately high pressure on prices in the foreseeable future.

Wage-price spiral unlikely, but wages will increase more in the medium term Despite the current increase in prices, there are no indications in Germany or Europe for a spiral of rising prices and wages. Bigger wage increases are nonetheless on the cards in the major countries for several reasons. Collectively agreed wages increased by around 1.5 percent in Germany and Europe in 2021. In the current year, wages should rise by just over three percent in the Euro area.

Alone the increase of the minimum wage in Germany will raise wages substantially. In 2023, the upward trend is set to flatten out slightly. In France, wages should increase by more than 2.5 percent while in Italy and Spain the increase in wages will be more moderate, at closer to 1.5 percent (Deutsche Bank Research 2021b, European Commission 2021). The recovery of the labour market is likely to take until 2023 although workers are already scarce in some sectors. In real terms, the rise in wages will continue to be comparatively moderate. Following an increase of around one half of a percent in 2021, real wages should increase by around one percent in 2022 and 2023.

In Germany additional factors driving prices up In Germany, inflation rates (5.2 percent in November year on year) have increased more in the last few months than in the Euro area as a whole. Accountable for this divergence are politically induced one-time effects, with two particularly dominant. First, the introduction of a national emissions trading system has fuelled prices. Second, the expiry of the temporary reduction in value-added tax has had a tangible effect right up to the end of 2021. Both of these one-time effects should have tailed off by the beginning of the new year and take the steam out of the upward momentum a little.

Financial markets Financial markets have been relatively quiet in the last few months. While the upturn of the stock markets diminished globally in the second half of 2021, bond yields in Europe and the United States remained low despite accelerating inflation rates. Currency markets have also been largely stable in the last few months.

The upward trend in values on the stock markets continued steadily from spring 2020 before coming to an end in the summer months. Since then, the stock markets have largely been trending in a slightly upward lateral movement. There are several reasons for this development. While rising corporate profits and negative real yields had a positive impact on the stock markets, swelling uncertainty regarding the future development of inflation and the further course of the pandemic increased the downward risks. The second half of the year was therefore generally coloured by a slight increase in volatility. Additional uncertainties such as concerns about the economic stability of China (triggered by the default of Evergrande) and expectations of an accelerated tapering by the U.S. Fed have dampened the upward trend on the stock markets.

16

Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

In Europe, the valuation increased by an average of five percent in the last six months of the year, with France and Italy recording a higher increase than Germany. This corresponds to the divergent overall economic recovery within the European Union and the Euro area. U.S. stock markets recorded a more dynamic performance in the second half of the year than Europe with increases in value averaging ten percent and a disproportionately high increase in technology stocks. In Japan, in contrast, the lateral movement which set in at the beginning of 2021 continued. China followed a similar pattern, with indexes treading water over the past few months. This is probably largely due to increasing uncertainty following the Evergrande bankruptcy and heightened interventionism on the part of the Chinese leadership. The remaining emerging markets (MSCI Emerging Markets) even dropped by around ten percent in the second half of the year.

In the course of the slowed momentum on the stock markets and rising corporate profits, price-toearnings ratios have dropped in the past few months. The price-to-earnings ratio of the S&P 500 index dropped to around 25 after climbing to record levels in spring. In Europe, price-to-earnings ratios have also fallen in the last few months, falling from over 22 to below 18. In Japan, price-to-earnings ratios have remained at a normal level of around 14 for a good eight months now.

Yields on bond markets have experienced several fluctuations but have remained on a low level in the last few months despite rising inflation. After increasing at the start of the year, bond yields then moved sideways in the further course of the year. Trends in government bond markets have been largely defined by the course of the pandemic and the resulting adjustments investors have made with their portfolios. When the pandemic appears to have improved and new cases of Covid are dropping, bonds are increasingly replaced by stocks which increases the yields. When, on the other hand, new infections are on the increase, investors increasingly opt for more secure investments which results in a decrease in yields. Additionally, prospects that the U.S. Fed will accelerate tapering and rising inflation have most recently caused a slight increase in yields here. In Europe, however, yields have remained at a low level with monetary policy adjustments and price increases lower than in the United States. While government bonds in the rest of Europe have slightly positive yields, bond yields in Germany are still in negative territory while the spread within the Euro area remains largely unchanged.

Exchange rates against the U.S. dollar 1,25 1.25

1,0 1.0

120

1,20 1.20

0.8 0,8

115

1,15 1.15

0,6 0.6

110

1,10 1.10

0,4 0.4

7,4 7.4 7.2 7,2 7.0 7,0

6,8 6.8 105

6,6 6.6 1,05 1.05

0,2 0.2

100

6,4 6.4

1.00 1,00

0.0 0,0

95

6.2 6,2

Euro (left axis) Pound Sterling (right axis)

Renminbi (right axis) Yen (left axis)

Source: Macrobond

17

Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

In the area of corporate bonds, the risk premiums on companies with a good credit rating were largely stable while risk premiums for more high-risk companies increased (European Commission 2021). As the yields of corporate bonds were relatively stable, with corporate figures improving considerably, many companies used this situation to replenish their liquidity after the summer. In the field of bank financing, sentiment among companies and consumers was also relaxed due to continuing historically low borrowing costs which supported the overall economic expansion (ECB 2021b). The trend to issue “green bonds” has increased.

There were no big surprises on the currency markets in the last few months. The euro lost 0.9 percent in value against its 42 most important trade partners in the last quarter. The euro lost value against the dollar (down 1.8 percent), the British pound (down 1.2 percent), the renminbi (down 2.8 percent), the Swiss frank (down 1.8 percent) and the Russian rouble (down 5.5 percent). The euro climbed against the Turkish lira and the Brazilian real as both these countries are struggling with high rates of inflation.

The euro gained against the currencies of Hungary, Poland and the Czech Republic, largely on account of adjustments in the monetary policy of those countries.

Global industrial production: Recovery losing steam In 2021, industry more than compensated for the slump in production caused by the Covid pandemic.

According to calculations by the Netherlands Bureau for Economic Policy Analysis (CPB), in the first quarter 2021, global industrial production increased by 6.8 percent compared to the same period the previous year. In the second quarter, industrial activity even surged by as much as 15 percent on account of the low levels in the same period of the previous year. Industrial activity then peaked in the middle of the year. Activity in the emerging countries in the second quarter dropped compared to the previous period, production in the developed economies stagnated in the third quarter. Global industrial production increased overall by 8.7 percent in the first ten months of 2021 year on year. However, a shortage of freight capacities and supply bottlenecks brought growth back down to moderate levels in the remainder of the year. We stick to our spring growth forecast for global industrial production of eight percent for 2021.

Advanced economies: Recovery faltering since summer In the advanced economies, industrial production only got back to the level of February 2020 in the middle of 2021, by which time most industrialised countries reimposed measures to try and curb the renewed spread of Covid. While industries in the Euro area and the United Kingdom are still producing less than they were before the outbreak of the pandemic, the output of industry in developed Asian countries excluding Japan has been back to pre-pandemic levels since August 2020. Industrial production in this group of countries increased by 8.8 percent in the first ten months of 2021 compared to the same period of the previous year. Even if production stagnated in the last two months of the year, the increase in production of these countries would be at around eight percent for 2021 overall.

Japanese industry is estimated to have increased its production by somewhat over four percent in 2021. This is not enough to compensate for even half of the decrease precipitated by the pandemic the previous year, which was a drop of ten percent. The situation is similar in the United Kingdom, were industrial production only increased by around four percent whereas the drop in 2020 was more than eight percent. In the United States, industry has been back to pre-pandemic production levels since the middle of 2021 and is estimated to have expanded its production by 5.5 percent in the year overall.

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

In the Euro area, production increased even more steeply, surging up just over seven percent. In the remaining advanced economies, production has been back to pre-pandemic levels since the beginning of 2021 and is estimated to have increased production by 7.5 percent on average. This represents an increase in annual production of around three percent compared to 2019. The purchasing managers’ index for advanced economies remained in expansionary territory for the last three months of 2021.

Even if production levels stagnated at the end of the year, the increase in production would be more than six percent.

Advanced economies: Industrial production* 25

20 15 10 5 0 -5 -10 -15 -20

other advanced economies Euro area

Japan USA

-25 2018

2019

2020

2021

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB)

Emerging countries: Asia strong, Africa and Latin America falling further behind On account of the rapid economic recovery of Asian states, industrial production in the emerging countries returned to pre-pandemic levels as early as November 2020. In the first six months of 2021, economic recovery continued in these countries with production expanding by 9.1 percent in the first quarter and 15 percent in the second quarter (year on year). A lateral trend then set in in the middle of the year, with very divergent trends in the individual groups of countries.

The strongest growth was recorded by Asian emerging countries excluding China. Industrial production here increased by 13.6 percent in the first ten months of 2021 compared to the same period in 2020.

Although the pace of growth then slowed down according to the latest figures, production for 2021 overall is likely to be up at around 13 percent, so, not just in the double digits but also higher than China (up ten percent). In Central and Eastern Europe, industrial production only regained prepandemic levels in the second quarter 2021. The pace of recovery in the region then dropped towards the middle of the year, so production is only reckoned to have increased by a scale of around four percent. This would bring annual production to around one percent higher than in 2019. In Latin America, industrial production has been just under pre-pandemic levels since the start of 2021 and has

19

Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

managed to retain this level throughout 2021. For 2021 overall, we expect an increase in industrial production of just over eight percent. This would bring the annual industrial production of Latin America to 1.5 percent lower than in 2019. In Africa and the Middle East, production is estimated to have increased by slightly more than three percent in 2021, only partially compensating for the pronounced slump of just over ten percent the previous year. The purchasing managers’ index for industry in emerging countries was in expansionary territory from August until the end of 2021. Even if industrial production in these countries stagnated in the last two months of the year, production would still have increased by nine percent in 2021 overall compared to the previous year.

Emerging economies: Industrial production* 20

15

10

5

0

-5

-10

Africa/Middle East Latin America Central and Eastern Europe Asia (excluding China) China

-15 2018

2019

2020

2021

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB)

Global trade and foreign direct investment According to IMF estimates from October, global trade increased by 9.7 percent in 2021 compared to the previous year. Global trade has therefore recovered from its slump of minus 8.2 percent triggered by the pandemic in 2020, with the global trade in goods running smoothly all in all. Nonetheless, global trade dipped in the third quarter 2021, down by 1.1 percent compared to the second quarter according to the Netherlands Bureau for Economic Policy. This was triggered primarily by a decline in demand, particularly from emerging and developing countries (imports down 1.9 percent on the second quarter).

The RWI/ISL container throughput index, which forecasts the development of world trade based on the capacity utilisation of key container ports worldwide, is still at a high level and at 125.3 at last count (December). Container throughput increased substantially towards the end of the year which will help loosen global supply bottlenecks. However, the rapid spread of the Omicron variant of Covid means that it is not unlikely that fresh strains will fall on container throughput. In October, the IMF was still predicting a growth in global trade of 6.7 percent.

20

Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

United States: Upswing loses momentum Economic development After taking a hard hit from the Covid crisis in 2020, the U.S. economy seemed to be recovering at the start of 2021. In the first two quarters of the year, GDP increased by an annualised rate of 6.3 and 6.7 percent respectively. According to preliminary estimates by the Bureau of Economic Analysis (BEA), growth in the third quarter then dropped down to an annualised growth rate of 2.3 percent. This is a result of Covid cases increasing again, bringing new restrictions and prompting some companies to postpone openings. At the same time, government aid to companies and private households decreased (BEA 2021a). In May 2021, the OECD had predicted growth rates of 6.9 percent for the year 2021 but in December 2021 it revised its forecast down to 5.6 percent. Forecasts for 2022 and 2023 are 3.7 percent and 2.4 percent respectively (OECD 2021). For 2021, the International Monetary Fund (IMF) and the European Commission are also expecting strong growth of six and 5.8 percent respectively. For 2022, the IMF also forecasts robust growth of 4 percent, while the European Commission’s forecast is at 4.5 percent (IMF 2021, European Commission 2021). We expect real growth of 3.75 percent.

The unemployment figures in the United States underline the dramatic impact the Covid pandemic has had on the U.S. economy. While in February 2020, unemployment was at 3.5 percent, by April it had shot up to 14.8 percent. Although unemployment has still not decreased to pre-crisis levels, it had gone down to 4.2 percent by November 2021 (Bureau of Labor Statistics 2021a). The unemployment rate among several minority groups and young people is well above the average level (Bureau of Labor Statistics 2021b). OECD predicts that the unemployment rate will continue to fall to 3.8 percent in 2022 and to 3.4 percent in 2023, which would be even lower than pre-pandemic levels (OECD 2021).

Following a clear drop in sentiment among U.S. consumers in 2020, it improved tangibly, climbing up to over 120 points by the middle of September according to the consumer sentiment barometer, the U.S. Consumer Confidence Survey. During the year, the index dropped again, standing at 115.8 points in December 2021 slightly below its highest level in that year. Compared to the previous month, sentiment nonetheless improved slightly (111.9 points) (The Conference Board 2021). U.S. consumer spending also increased steadily, with an increase of 0.6 percent recorded in November compared to the previous month. In October 2021, the upturn in sentiment was even clearer with a plus of 1.4 percent compared to the previous month. The disposable income of private households rose by just 0.4 percent in both October and November after losing 1.3 percent in September (figures month on month in each case (BEA 2021b)).

Prices and inflation have been increasing considerably in the United States since spring 2021.

According to the Bureau of Labor Statistics, the Consumer Price Index rose by almost 6.9 percent in November 2021 compared to November 2020. This is the largest 12-month increase recorded since June 1982. Steep increases in commodity prices are particularly responsible for the strong upward pressure on inflation. In November 2021, prices for gasoline were up by 58.1 percent and prices for fuel oil by 59.3 percent year on year (Bureau of Labor Statistics 2021c).

Government debt In view of the size and number of fiscal measures taken, it is not surprising that the budget deficit of the United States has increased. In July 2021, the Congressional Budget Office (CBO) published a revised estimate of public finances for the fiscal year 2021. According to this report, U.S. debt will

21

Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

exceed the economic output of the country, reaching a debt ratio of 103 percent of GDP at the end of 2021, which corresponds to a budget deficit of 13.4 percent of U.S. GDP. This would be the secondhighest relative deficit since 1945. The Covid stimulus package at the end of 2020 had pushed the budget deficit for 2020 up to 14.9 percent of U.S. GDP. In CBO’s projections, annual deficits will decrease until 2024 (2.9 percent of GDP in 2024), before increasing again to reach 5.5 percent of U.S. GDP by 2031, which is well above the 50-year average of 3.3 percent (CBO 2021).

Foreign trade U.S. foreign trade was also marked by a steep decline in the Covid crisis year of 2020. In the third quarter, the downward trend then turned around with both imports and exports rising constantly since.

According to BEA figures, U.S. exports of goods and services amounted to around 632 billion U.S. dollars in the third quarter 2021 following seasonal adjustment, which represents a hefty year on year increase of 20.9 percent. U.S. imports of goods and services totalled over 857 billion U.S. dollars in the third quarter 2021 which also represents a substantial year on year increase of 20.7 percent (BEA 2021c). For 2021, the OECD forecasts an increase in U.S. exports of goods and services of 3.8 percent in 2021 and 3.4 percent in 2022. For U.S. imports of goods and services, the OECD expects a rise of 13.4 percent in 2021 and six percent in 2022 (OECD 2021).

Fiscal measures under the Biden administration Some of the fiscal measures and emergency packages to support both private households and businesses during the Covid pandemic under the Trump and Biden Administrations have either expired or been reduced, including the Child Tax Credit in January 2022, the expansion of unemployment insurance benefits in September 2021 and the Paycheck Protection Program in September 2021 (New York Times 2022). These changes also affect the economic output of the country.

Alongside a series of emergency packages, U.S. President Joe Biden presented several legislative packages in his first year in office unleashing an unprecedented scale of social and infrastructure spending. Some of these legislative packages have already passed Congress and became law. These include the American Rescue Plan, which entered into force in March 2021 and has a total volume of around 1.9 trillion U.S. dollars and a focus on social spending (White House 2021a).

Following months of negotiations, the Infrastructure Investment and Jobs Act was passed in November 2021 with a broad majority in both parties. According to information from the White House, the legislative package will help mitigate inflationary pressure, strengthen supply chains, and create jobs.

The package has a total volume of more than one trillion U.S. dollars for infrastructure and social spending, including the following investment in infrastructure: ▪ ▪ ▪ ▪ ▪

110 billion U.S. dollars for the reconstruction and expansion of roads and bridges and a total of 42 billion U.S. dollars for the modernisation of the country’s port and airport infrastructure, a total of 120 billion U.S. dollars for the expansion of the water supply and broadband infrastructure, 39 billion U.S. dollars for the modernisation and expansion of public transport and 66 billion U.S. dollars for the expansion of rail transport in the United States, 65 billion U.S. dollars for the modernisation of power grids, 50 billion U.S. dollars to strengthen U.S. infrastructure protection against the consequences of climate change, weather events and cyberattacks (White House 2021b).

22

Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

In October, President Biden presented his proposal for the so-called Build Back Better Act. This legislative package has a total volume of 1.75 trillion U.S. dollars. The centrepiece of the legislative package is spending on childcare and healthcare as well as investment in climate protection, including the following spending and investment: ▪ ▪ ▪ ▪

400 billion U.S. dollars for childcare and preschool, 200 billion U.S. dollars for tax credits, particularly for families, 555 billion U.S. dollars for investment in clean energy and climate protection, 130 billion U.S. dollars for the expansion of the Affordable Care Acts (ACA).

Plans are to finance this package by increasing tax rates for large companies and top earners, who benefited particularly from the tax cuts of the Trump administration. Personal income under 400,000 U.S. dollars will not be subject to higher tax.

While the House of Representatives has already passed the legislative package, it has not been passed by the Senate yet, after Senator Joe Manchin (a democrat from West Virginia) announced shortly before Christmas that he would not vote for the package in its current form. He justified his move with concerns about further escalating government debt and increasing inflation (New York Times 2021). It is therefore currently unclear when and in what form this legislative package, which forms a central part of President Biden’s domestic policy agenda, will be passed.

U.S. GDP growth, quarterly (annualised) 40

33.8

30 20 10

4.5

6.3

Q4

Q1

6.7 2.3

0 -10

-5.1

-20 -30 -31.2 -40 Q1

Q2

Q3 2020

Q2

Q3 2021

Source: Bureau for Economic Analysis

23

Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

China: Slowing growth and turbulences on the property market Chinese economic growth is slowing down again. While China’s GDP grew by 8.1 percent in the year as a whole, growth slowed down to only four percent year on year in the fourth quarter 2021. Tighter lending standards curbed high-growth sectors in particular. Disruptions to supply chains and in energy supply have increased costs and put further pressure on China’s producers. On account of weak domestic demand, rising producer prices can only be passed on to domestic consumers to a limited extent. Despite increasing input costs and disruptions to supply chains, the export sector is still the dominant engine of growth of the Chinese economy. This could soon change if global competitive pressure increases further. China is expected to grow by slightly more than five percent in 2022.

Credit growth curbs activity The Chinese leadership is again focussing more on reducing debt and the dependency of the economy on debt-financed growth. In September, new domestic loans amounted to around 29.7 billion U.S. dollars (191.2 trillion renminbi) which represents a year-on-year increase of only 11.7 percent, the lowest growth in domestic credit for over ten years. This puts a strain on the economic activity of the property and industrial sector in particular. Especially smaller private companies are finding it more difficult to finance themselves.

Property sector in an adjustment crisis The growth rates in the property and construction sector dropped further in 2021. The slowdown in the increase in private household income and the uncertainty of the impact of China’s regulatory interventions in the property sector have curbed consumer demand for residential property. The sold floor space in commercial properties amounted to almost 1.8 billion square metres, which corresponds to an increase of only 1.9 percent. Total sales of commercial properties amounted to almost 18.2 trillion yuan, which is an increase of 4.8 percent. The lull in sales presents a problem for Chinese property developers as they then have difficulty in accessing the fresh cash needed to meet the regulatory requirements introduced in late 2020. Media attention has zoomed in on property giant Evergrande, indebted by over 300 billion U.S. dollars, after its default on the final date for interest payments on foreign bonds to the sum of 82.5 million U.S. dollars, making it factually insolvent.

Infrastructure investment very low Investment in infrastructure remains restrained as local governments are faced with low tax revenues and attempts by the central Chinese government to contain the growth in local government debt.

Capital investment in infrastructure continued to slow down in 2021 and finished off the year at only 0.4 percent above last year’s level. The drop in infrastructure investment was particularly pronounced in the structurally weak western provinces of China, further increasing the economic cleft between the more advanced eastern provinces.

Industrial production: Upward trend subsiding The growth of the Chinese industrial sector has also slowed down although industrial value added was still 9.6 percent higher in 2021 than in the previous year. The export-oriented manufacturing sector, in particular, is still expanding to meet demand from abroad. The slower pace of growth in heavy industries and the automotive sector is nonetheless putting the Chinese economy under strain, with

24

Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

temporary energy shortages and the caps on energy-intensive production ordered by the government exacerbating the slowdown. Looking at the individual product groups, the production of electric vehicles (up 145.6 percent), industrial robots (up 44.9 percent), integrated circuits (up 33.3 percent) and microcomputers (up 22.3 percent) recorded particularly high growth.

Exports and direct investment still high In 2021, China’s foreign trade increased by a robust 21.4 percent, with exports climbing 21.2 percent and imports 21.5 percent. High export activity was one of the main pillars of the Chinese economy in 2021. The trade surplus in 2021 stood at 688 billion U.S. dollars. While rising prices of commodities and intermediates contributed to increasing the value of imports and exports, Chinese exports were able to benefit from the sustained disruptions in global industrial production and expand their market shares. In 2020, China had thus already overtaken Germany as the leading worldwide exporter in mechanical engineering. However, the contribution of exports to Chinese economic growth is set to drop considerably in the course of 2022 as soon as other export-oriented countries recover and step up competition on the international markets again.

The situation was similar with foreign direct investment (FDI). The Chinese economy seemed comparatively stable compared to other markets and thus attracted more foreign direct investment flows. Up to November 2021, China had recorded FDI to the sum of 157 billion U.S. dollars which represents an increase of 15.9 percent compared to the same period the previous year. Here too, growth is likely to flatten out once the global economy revs up again.

Services still weak on account of Covid China’s service sector managed to grow another 8.2 percent in 2021 but is set to slow down again.

New restrictions imposed to contain the spread of Covid-19 will further curb spending on tourism, particularly during the upcoming holiday period around the Chinese New Year and during the Olympic Winter Games in February 2022. The travel restrictions continue to affect tourism in some southern and western regions, in particular. Last year, spending on hotels and restaurants also dropped on account of Covid-related restrictions. In the service sector, employment and the growth of household income decreased overall.

Private household incomes and consumption only rise moderately Disposable per capita income grew by 9.1 percent in 2021. Real growth following price adjustment increased 8.1 percent. In view of the weaker growth in household incomes and the fact that Chinese consumers are more inclined to save on account of the persistent economic insecurity, consumption levels in the Chinese economy remained weak. Retail sales, which is a key indicator for consumption, was still at 12.5 percent higher than the previous year. However, in December, total sales of consumer goods were only 1.7 percent higher than in December 2020. Although online retail sales continued to grow, expanding 14.1 percent in 2021, this is lower than the average growth over the previous years.

One factor curbing consumption is the fragile situation on the labour market. Official national statistics on this highly politically sensitive issue are not very reliable. According to official figures, urban unemployment across the country was at 5.1 percent in November 2021. However, we can assume that the labour market has not been left unscathed, particularly by the abrupt regulatory interventions in online platforms, the politically motivated and abrupt crackdown on the private education sector with an estimated workforce of ten million, and the crisis in the property sector. Indications of the

25

Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

consequences are revealed in the local statistics: the number of individuals on unemployment benefits in Shanghai, which averaged 100,000 between 2013 and 2019, had multiplied more than sixfold to over 650,000 by the third quarter of 2021.

China’s central bank hold reins tight China’s central bank is focussed on supporting the sluggish rate of growth without lowering its efforts to reduce debt or stoking concerns of inflation. While central bank officials had advocated combating inflationary pressure and normalising monetary policy in the wake of the outbreak of Covid in China, the People’s Bank of China (PBoC) first took several expansionary measures such as reducing the minimum reserve rate in July and December and large-scale liquidity injections in October. In its efforts to contain inflationary pressure, the PBOC had not cut key interest rates for corporate and household loans since spring 2020 even though investment in high-growth sectors had dropped substantially.

Only in the second half of December 2021 did the central bank cut the one-year loan prime rate (LPR) by five base points to 3.80 percent. The five-year LPR remained unchanged. At the start of 2022, the key interest rate was again cut by a marginal 0.1 percent. Ultimately, the approach of the PBOC of increasing liquidity primarily through cutting the minimum reserve rates and avoiding reducing the key interest rates is aimed at mitigating short-term economic problems while avoiding broad monetary expansion. This does not mean that the interest rate cuts at the turn of the year are not the first steps towards further interest rate cuts in the course of 2022.

Moderate increase in consumer prices and dynamic producer prices The divide between rising producer prices and the slowing growth of consumer prices reached record levels towards the end of 2021, exacerbating the cost pressure on Chinese producers. The Chinese Producer Price Index (PPI), which measures the growth rate of input prices for domestic companies in China, has risen sharply since May 2020. This also reflects the globally increasing commodity prices and increased transport costs. Further factors fuelling prices are the additional costs of supply chain disruptions caused by electricity outages and state-imposed reductions in the production of energyintensive input goods such as steel and concrete.

According to figures from the Chinese Statistical Office, the Chinese Producer Price Index increased by 8.1 percent in 2021 year on year while consumer prices only rose 0.9 percent in the same period.

Rising export prices indicate that the producers of export-oriented industries have started to transfer these rising costs to foreign markets thus contributing to global inflationary pressure. On account of the weak domestic demand, Chinese producers have so far avoided passing on these higher prices to domestic consumers keeping consumer price inflation low.

Outlook for 2022: Moderate growth China’s economy fared better through the crisis year 2020 than most other major economies and returned to high economic growth in 2021. However, as the last quarter 2021 was relatively weak the outlook for 2022 is mixed. Pressing down on the economy at the end of the year were not just economic factors but also tough regulatory interventions, above all in the high-tech sector and in the overheated property market. The large and, in part, systematically important property developers such as Evergrande and Kaisa have been under financial pressure for months. The Central Economic Work Conference of the Chinese government in December 2021 was thus focussed largely on stability. A new wave of large economic stimuli is not on the cards, but great restraint is likely to be exercised

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

concerning regulatory interventions that could have a negative impact on growth. Financial policy is also set to become less inhibiting for growth. The Chinese government is also unlikely to let the large property developers slide into insolvency unchecked for fear of negative economic ripple and snowball effects. Individual fiscal and monetary levers will probably be used to provide further support in the form of, e.g., public investment and relief for borrowers. All in all, private consumption spending and investment should pick up slightly. Foreign trade should also be able to make a contribution to growth.

The Chinese government must nonetheless ask itself where growth will come from in the next few years. Both infrastructure projects and property and construction projects are increasingly falling out of the equation on account of saturation following several years of boom. Domestic consumption is still below expectations and in the case of exports it remains to be seen to what extent China’s foreign trade partners will continue to accept China’s tough foreign trade policy focussed on independence.

China: Inflation development* 2020/2021 15

13.5 12.9 10.7 Consumer price

10

9.0 8.8 9.0

9.5

10.3

Producer price 6.8 4.4

5

5.4 5.2 1.7

4.3 0.1 0

3.3 -0.4

2.4 2.5 2.7 2.4

-1.5 -3.2

-3.7

-3.0

-0.5 1.7 -2.0 -2.1 0.5 -2.4

0.2

0.3

-0.4 -0.3 -0.2

1.5 0.9 1.3 1.1 1.0 0.8 0.7 0.4

2.3

1.5

-1.5 -2.1

-5 2020

2021

*change over previous year in percent Source: National Bureau of Statistics of China

Euro area and the EU Strong upward demand and continuing supply bottlenecks is also set to dominate economic activity this year. The large-scale outbreak of the Omicron wave of infections will curb consumption spending and investment activity in the first quarter at least. Upward forces will take some time to have an impact.

In the event that there are no significant production or transport problems in the Euro area and in the EU, growth in 2022 is expected to reach 3¾percent.

Private consumption picked up considerably in the second and third quarter 2021 but was still 2.4 percent below its pre-pandemic level in the third quarter (ECB 2021a). European consumers were nonetheless the main driver of economic recovery. In 2021 overall, private consumption is estimated to have increased by 3.3 percent year on year (ECB 2021a). Consumption was buoyed particularly by the progress gained in the vaccination campaigns and improvement in the overall economic situation.

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

The savings rate accordingly dropped steeply and this trend is likely to continue into 2022, albeit slightly less pronounced. Private consumption should recover steadily throughout this year and the next. The pace of recovery in the first quarter 2022 may at times be slower given the uncertainty regarding increased energy prices and the possible impact of the spread of the Omicron variant.

Gross fixed capital formation trended upwards in the first six months of 2021, fuelled above all by full order books resulting from rising demand within Europe and worldwide. The upward momentum was curbed by supply bottlenecks, affecting the automotive industry in particular. The supply shortages will only gradually ease up in the course of this year and 2023. Another downward force is the increasing shortage of skilled labour. These shortages in conjunction with high energy prices and uncertainty surrounding the further course of the pandemic are the main risks facing European industry in 2022.

On the positive side, the financing environment continues to be favourable and one-time effects such as the European spending and investment scheme NextGenerationEU will be working in favour of overall economic growth.

Construction activity was already two percent over its fourth quarter 2019 level in the second quarter 2021 and posted a solid performance in the first half of the year. As in the case of gross fixed capital formation, growth here was also curbed by delayed supplies and a shortage of skilled labour. This trend is set to persist into 2022 and, combined with increasing demand triggered through the use of savings, for example, will drive construction and property prices up.

Exports continued to recover in 2021. Exports in the Euro area increased by 9.3 percent last year (ECB 2021a), buoyed by rising global demand for goods and an increase in activity in services such as tourism. Here too, a shortage in supplies and skilled labour capped growth. On the other hand, the moderate devaluation of the euro, particularly against the Euro area’s key trade partners, had a positive impact on exports. Imports are estimated to have increased by seven percent. The trade balance therefore remained in the positive with a surplus of two percent of GDP estimated for 2021 with a similar performance expected in 2022 (ECB 2021a).

Supply bottlenecks stifling German industry In the last few months, supply bottlenecks have intensified and are having an increasingly negative impact on value added in Germany’s manufacturing sector. At the end of 2021, supply-side shortages affected 70 percent of manufacturing companies. Individual industries that struggled most with shortages in the course of 2021 were the automotive industry (incl. suppliers), mechanical engineering, the metal industry, and large sections of the plastics and chemical industry.

A broad mix of causes The bottlenecks are the result of a variety of multifaceted factors that are mutually reinforcing. The single biggest factor is the consequences of the Covid pandemic. On the supply side, measures introduced to combat the pandemic (such as regional lockdowns) temporarily reduced production and transport capacities. This has, at times, thrown global supply chains completely off track. At the same time, demand fluctuated heavily resulting in available capacities quickly becoming either under or overutilised.

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

Structural issues are magnifying the effects of the pandemic. The main factors here are production capacities that are rigid in the short term, the prolonged increase in demand (e.g., for electronic equipment) and an intensifying shortage of skilled labour in the transport sector. There is, for example, a shortage of truck drivers in many European countries. Political factors also come into play here, such as the continuing trade disputes between China and the United States, as do the sharp cyclical fluctuations of the global economy that exacerbate the bottlenecks. Last, but not least, the Chinese government capped the production of some metals by rationing electricity.

Many industries affected The shortages are affecting many different sectors. The supply-side availability of commodities and intermediate products deteriorated considerably in the course of last year. Almost all categories of commodities important to the manufacturing sector are affected, including, first and foremost, iron, metals and plastics. Commodities central to the twin transformation of the economy (e.g., lithium and cobalt) are also becoming less readily available. The most problematic shortage currently is the lack of semiconductors and chips. The German automotive industry is particularly affected by this bottleneck, also on an international comparison.

Considerable bottlenecks have also built up in the transport sector caused by the pandemic and by extraordinary factors such as the temporary closure of the Suez Canal. These bottlenecks are causing delays in the shipping and road transportation of goods and sharply increasing transport costs. At times, more than ten percent of global container capacities were affected by delays.

Production drops tangibly below normal levels The shortages are having a major impact on overall economic development in Germany. First, they decisive in bringing production levels down in the second half of the year 2021 despite a solid performance from orders. The supply-side bottlenecks are the dominant force driving the divide between output and incoming orders. Manufacturing output at the end of 2021 would have been between seven to ten percentage points higher without any shortages. This represents a loss in value added of more than 50 billion euros in 2021. The bottlenecks in the automotive industry alone thus brought GDP down by around 1.5 percent in 2021.

Shortages only set to ease in the further course of the year As the shortages are here to stay in the short term, production levels in the manufacturing sector will only recover gradually in the course of this year. Production will probably not be fully back to prepandemic levels by the end of 2022. Losses to the overall economic value added will continue throughout 2022 and only subside in 2023.

Second, the bottlenecks are fuelling the prices of intermediate products and commodities. Price increases in oil, gas and metal commodities were particularly steep due to the demand-side pressure increasing in the second half of 2021 and bumping up against supply that is not elastic in the short term and limited capacities. Despite the current price spikes, the situation on the oil and gas markets should ease up in spring with the changing seasons and increasing supply.

Companies across all sectors are faced with increasing prices. Rising input prices have pushed producer prices up more and more, reaching a rate of over 15 percent in late 2021 which is higher than it has been in many decades. Prices are likely to continue to increase at the beginning of the year on account of the persisting shortages before gradually calming down.

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

Overall, the problem of bottlenecks is not going to go away any time soon. Alongside continued uncertainty surrounding the further course of the pandemic, the structural causes of the shortages need to be addressed and the current shortages eased. This will require an expansion of supply and transport capacities through increased investment activity to remove present rigidities. This process will require much time and much money. Given this backdrop, the overall situation will only brighten up gradually in 2022 with no tangible improvement likely to set in before the second half of the year. In the medium term, the diminishing impact of the pandemic and an expansion of supply capacities will improve and normalise the overall situation.

New measures in China pose risk for global shipping The Chinese metropolis Xi‘an has been under a strict lockdown since the end of December 2021, which has also reduced economic activity. This is the most stringent and regionally comprehensive lockdown China has imposed since the outbreak of the Covid virus in Wuhan 2020. The first cases of the new Omicron variant then surfaced at the beginning of 2022 in the port city of Tianjin. A partial lockdown has also been imposed on this urban area.

It is currently not foreseeable to what extent logistic disruptions in Chinese production facilities or partial closures of Chinese ports will impact global supply chains and supplies to Europe in the course of the year. While these lockdowns are likely to affect global supply chains to some extent, major disruptions such as those following the first lockdown in early 2020 are not likely as companies have learnt from their experiences and can now better respond to the measures imposed by the Chinese leadership to combat the pandemic.

There are a series of other factors that could influence the duration and implementation of the lockdown. First, it remains to be seen how strongly and rapidly the Omicron variant spreads in China.

The Chinese leadership may well opt to impose measures that are not just more stringent but are in place for longer and across a wider area. If the Omicron variant proves to spread more easily and quickly in China, which is probable, this could cause another chokepoint for global supply chains and drive individual sectors of German industry into recession. Second, the Olympic Winter Games play a role in this equation. The Chinese authorities already started to impose more stringent requirements in the run up to the Olympic Winter Games. It looks like the government will stick to its zero Covid strategy and is prepared to pay the resulting economic costs.

In this context, it is to be expected that further lockdowns will be imposed in China, which will present fresh challenges to producers and exporters and, in turn, the companies at the end of the supply chains. Resulting shortages are also likely to drive prices up further and, with it, inflation. The further course of Covid in China thus represents a risk to the recovery of industry. Companies should therefore already prepare for various scenarios at the beginning of the year and take any precautionary measures available to them.

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

Germany Material and supply shortages will continue to restrict growth in large swathes of the manufacturing sector in the first six months of the year at the least, which will also delay the recovery of exports. For 2022 overall, we expect the export of goods and services to increase by four percent in real terms.

This is below the growth forecast for global trade. On the import side, the import of intermediate goods is set to rise slightly. Imports could rise more sharply if companies manage to replenish their stocks depleted in the course of the pandemic. If restrictions to combat the pandemic are eased in spring, increasing travel abroad may also trigger an increase in the import of services. The import of goods and services are expected to increase by a slightly higher 4.5 percent following price adjustment. In sum, the resulting contribution of foreign trade to GDP would be marginally positive at 0.1 percentage points.

BDI forecast for 2022: Change in real economic output over the previous year in percent BDI

OECD

2022

2022

GDP, real

3.5

4.1

Consumption

3.5

-

- Private Consumption

5.0

6.8

- Public Consumption

0.0

0.7

3.2

3.6

- Machinery and Equipment

5.0

-

- Construction

2.0

-

- Other

3.0

-

Exports

4.0

4.1

Imports

4.5

4.9

Net Exports, Economic Output

0.1

-0.1

Investment

Sources: OECD (December 2021), own calculations

The domestic economy could also firm up once the fifth wave has been overcome in spring. The most recent figures on employment have turned up. The number of individuals in employment subject to social security contributions already reached pre-pandemic levels in June last year. The high savings ratio should ensure solid demand from private consumption. We expect private consumption spending to increase by a robust five percent this year. As we do not anticipate further increases in public consumption spending this would result in an increase in overall consumption spending of 3.5 percent this year. Increasing exports should also fuel investment activity, especially given that the capacity utilisation rate is still above the long-term average in many manufacturing industries.

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

Construction investment and investment in other assets (software, research and development) should also turn around in the course of this year. All in all, gross fixed capital formation is set to increase by 3.2 percent year on year.

Overall, we anticipate a 3.5 percent increase in gross domestic product in 2022 overall compared to the previous year in real terms. This forecast is based on the assumption that a large section of the population will be vaccinated by autumn and that economic activity will no longer be restricted by precautionary measures to combat the pandemic and that supply chains will get back to normal in the second half of the year.

International coordination helpful to overcome pandemic Closer collaboration and coordination of economic, financial and public health policy measures, at least among the major democracies, is definitely the best option to overcome the economic impact of the pandemic. Germany can use its G7 presidency to play a constructive role in this process.

Carefully scaled rescue and growth measures probably needed In spring, the economic and financial policy measures to the fourth and foreseeable fifth wave will need to be carefully reviewed to check whether the response has been sufficient or whether further measures are necessary to safeguard stability. The growth targets of the governments of almost all G7 countries are not likely to be met as the fifth wave is set to be much too strong. Renewed liquidity and solvency measures to support companies will be unavoidable. At the same time, it will prove to be a more difficult undertaking as those contact-intensive industries that are already in a weakened economic position will be most affected once again. Liquidity assistance, which has helped in the past, will also help again in the short term but the focus may need to shift more than in previous waves to simple equity assistance for those companies that are generally solvent.

Further stimulating growth on the same scale as in 2020 and 2021, which saw ambitious packages in the European G7 countries, would not be useful or appropriate but could, on a smaller scale, nonetheless help to compensate for the loss of economic output. Additional measures should be more targeted to bolster the twin transformation and encourage private investment above all, particularly given that the EU Recovery and Resilience Programme focused on public investment has got off to a good start and cannot be upscaled in the short term. In Germany, measures to strengthen investment activity are already on the agenda as outlined in the coalition agreement. The United States will likely need to reintroduce labour market policy measures. Japan has already passed a large-scale package.

France could possibly step up its support measures. Italy is already very engaged with the implementation of a large package. Canada still has some scope if necessary. In addition, the G7 governments should underline their intentions to consolidate public finances in the medium term.

Central banks cannot march in step This would also make the lives easier for the central banks that are already faced with responding to manifold supply shocks and the very partial positive shocks in demand. On account of the divergent economic and pandemic situation in the individual countries, the central banks of the G7 countries need to take different approaches with an earlier tightening and perhaps more substantial response to the developments of the pandemic in the United States and in the United Kingdom than in the Euro area and in Japan.

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Sources Board of Governors of the Federal Reserve System (2021). Press Release. Federal Reserve issues FOMC statement. 15 December. Washington, D.C..

Bureau of Economic Analysis (2020a). News Release. Gross Domestic Product (Third Estimate), Corporate Profits (Revised Estimate), and GDP by Industry, Third Quarter 2021. 22 December.

Washington, D.C..

Bureau of Labor Statistics (2021a). Civilian Unemployment Rate. Washington, D.C..

--(2021b). The Employment Situation – November 2021. Washington, D.C..

--(2021c). Consumer Price Index – November 2021. Washington, D.C..

Congressional Budget Office (2021). Additional Information About the Updated Budget and Economic Outlook: 2021 to 2031. July 2021. Washington, D.C..

--(2021b). News Release: Personal Income and Outlays, November 2021. 23 December. Washington, D.C..

--(2021c). News Release: U.S. International Transactions, Third Quarter 2021. 21 December. Washington, D.C..

Deutsche Bank Research (2022a): World Outlook 2022-23: Dodging the Tempests. 13 December.

---(2021b). 2022 wage outlook. Focus Europe. 26 November.

Deutsche Bundesbank (2021). Monatsbericht. December.

European Commission (2021): European Economic Forecast. Autumn 2021. Institutional Paper 160. November. Brussels.

European Central Bank (2021a). Macroeconomic Staff Projections. December.

---(2021b). Economic Bulletin Issue 7, 2021.

International Monetary Fund (2021). World Economic Outlook. October. Washington, D.C..

---(2022). World Economic Outlook Update. January. Washington, D.C..

New York Times (2021). Manchin Pulls Support From Biden’s Social Policy Bill, Imperiling Its Passage. 20 December. Washington, D.C..

--(2022). Child Tax Credit’s Extra Help Ends, Just as Covid Surges Anew. 2 January. New York.

OECD (2021). Economic Outlook. November. Paris.

Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (2021). Jahresgutachten 2021/22. Transformation gestalten: Bildung, Digitalisierung und Nachhaltigkeit. Wiesbaden.

The Conference Board (2021). Consumer Conference Survey.

White House (2021a). Fact Sheet. American Rescue Plan. Washington, D.C..

--(2021b). Fact Sheet: The Bipartisan Infrastructure Deal. 6 November. Washington, D.C..

--(2021c). President Biden Announces the Build Back Better Framework. 28 October. Washington, D.C.

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Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022

Imprint Bundesverband der Deutschen Industrie e. V. (BDI) BDI – Federation of German Industries Breite Straße 29 10178 Berlin T: +49 30 2028-0 www.bdi.eu Authors Dr. Klaus Günter Deutsch T: +49 30 2028 1591 k.deutsch@bdi.eu Stefan Gätzner BDI Representation Beijing T: +86 1085 322862 s.gaetzner@bdi.eu Thomas Hüne T: +49 30 2028 1592 t.huene@bdi.eu Anna Kantrup T.: +49 30 2028 1526 a.kantrup@bdi.eu Matthias Krämer T.: +49 30 2028 1562 m.kraemer@bdi.eu Wolfgang Krieger BDI Representation Beijing T: +86 1085 325421 w.krieger@bdi.eu Tim Meyer Trainee Research, Industrial and Economic Policy Sven Schönborn BDI Representation Brussels T: +322 7921 011 s.schoenborn@bdi.eu Dr. Christoph Sprich T: +49 30 2028 1525 c.sprich@bdi.eu Editorial / Graphics Marta Gancarek T: +49 30 2028 1588 m.gancarek@bdi.eu This Global Growth Outlook is a translation based on Globaler Wachstumsausblick – Aufschwung – Engpass – Inflation | Die Weltwirtschaft im Corona-Zyklus, as of 22 January 2022

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