T +352 270448-0
F +352 270448-729
info@feri.lu
18, Boulevard de la Foire
L-1528
Luxembourg
Growth disappointed in the third quarter, while at the same time prices rose sharply. This reinforces fears that inflation will not pass soon. Since many industrial intermediate products are likely to remain in short supply for some time, there is no relief in sight for the price trend for the time being. The strong rise in energy prices will also be reflected in the inflation data in the coming months. However, the longer the level of inflation remains at a high level, the greater the risk of rising wages - this is especially true where labour market shortages favour wage increases.
In economic terms, developments in China in particular are a cause for concern. Growth momentum there has slowed even more than expected since the leadership attempted to reduce misallocations and set other economic policy priorities through regulatory intervention in a number of sectors. China's weakness is particularly hurting the export sector of many emerging markets. To make matters worse, high infection rates combined with still-low vaccination rates in a number of countries such as Thailand, Vietnam, Indonesia and the Philippines continue to force serious pandemic response measures. The result is continuing disruptions in the global movement of goods with a considerable impact on the industrialized countries as well. Here, the industrial sector hardly contributed to a positive economic development in the third quarter. For their part, the disruptions in global supply chains and the resulting shortages are contributing significantly to the high price momentum.
The weakness of the industrial sector was again hardly offset by the services sector: The spread of the delta variant and warnings of further waves of infection are unsettling many people, even with high vaccination rates, and are slowing down their willingness to consume, which is preventing a return to pre-Corona sales levels for the time being, especially in sectors such as tourism or hotels and restaurants, but also in the leisure sector.
Nevertheless, a return to more positive growth momentum in the fourth quarter seems possible. Once again, much will depend on further developments in China. Historical experience suggests that the leadership there is wary of too sharp a slowdown in growth and may therefore take stimulative measures again. In the emerging markets, a significant increase in vaccination rates is also on the cards, reducing vulnerability to new waves of infection and thus the need for pandemic control restrictions. Finally, in the developed world, more countries may move to more or less completely lift Corona measures and leave the management of the remaining risk of infection to the citizens themselves. If these factors prevail, a revival of the economy would be possible, allowing most countries to return to pre-Corona pandemic baseline levels around the turn of the year.