Following a very strong rebound from the COVID-19 crisis economists at Danske Bank see rising downside risks to global growth over the coming quarters.
Chinese growth risks have increased
“The Evergrande crisis is set to lead to weaker Chinese performance and we have revised down our GDP forecast for this year to 8.0% (from 8.5%) and to 4.5% in 2022 (from 5.0%).”
An energy ‘crisis’ is eroding purchasing power
“The sharp rise in gas and electricity prices we witness in Europe will lead to a longer period of high inflation in the euro area. If current levels of gas and electricity last throughout the winter, it could add around 1% to euro inflation, which will erode purchasing power among consumers. Oil prices have also increased more than expected, which will also delay the decline in US inflation, eroding the purchasing power of the US consumers.”
Covid herd immunity is not reached ahead of winter
“In the US it looks like only around 60% of the population will be fully vaccinated and in Europe, the number is around 75%. With the more contagious delta variant, most estimates of herd immunity are around 80- 90% and we could thus very well see new covid waves once the cold weather hits. While we don’t expect this to trigger new lockdowns it could still hit not least service consumption as unvaccinated people are likely to go less out during a covid wave.”
Higher inflation is tying policy makers’ hands
“The current inflation pressures will likely require that central banks proceed with tightening plans and we expect the bar to be high for the Fed to delay tapering. Given the stagflationary environment, there is simply less room for central banks to support growth.”
Supply chain disruptions continue
“Bottlenecks throughout the supply chains remain unresolved. In many Asian countries, covid waves have disrupted production and now that lockdowns are eased, many migrant workers in factories are returning back to their villages leaving labour shortages intact. Shortages of microchips also continue to be an issue for the car industry.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.