July 02, 2021 | 13:04
Global Growth Stumbles
One would’ve thought that, as the 2nd half of 2021 began, there would be more enthusiasm about the rebound in economic activity. More people are receiving their 2nd dose. Businesses have reopened, tourist sites are welcoming visitors, concerts have live audiences, one can spend some nights on Broadway, and masks are no longer required for fully vaxxed people in some areas. Yes, there should be more excitement… but that doesn’t seem to be the case. For starters, new variants are spreading… Alpha, Beta, Gamma, Epsilon, and the highly infectious Delta. The latter strain is weighing on Asia, prompting new stay-at-home orders and restrictions in countries such as Australia, Indonesia and Malaysia. Tokyo’s state of emergency may be extended again, with only three weeks before the start of the Summer Olympics. France lifted its last restrictions on June 29 but in the same week, the government’s chief scientific adviser warned that a 4th wave was possible. The U.K. had delayed its reopening by a month and though the new target date of July 19 hasn’t been changed, the surge in new cases is cause for concern.
Then, there are the global supply problems. At first, it was the lack of semiconductors and shipping containers, and traffic at West Coast ports. Those are still an issue but other events have made things worse. Think about the Suez Canal fiasco, the hacking of meatpacker JBS (briefly messed up food supplies), a COVID outbreak at a major port in Guangzhou, low water levels in the Panama Canal (anyone remember a similar situation with Germany’s Rhine River back in 2018?), reports of more paperwork required by U.S. Customs on items coming from China. I’m sure I’m missing something. Oh yes, the mad dash to order plenty of inventory for the upcoming holiday season so one can offer something to customers. Something is better than nothing.
Those are likely the main reasons why growth has stumbled or stalled. China’s manufacturing PMIs eased to 4-month lows but some of that was self-imposed as businesses held back on power usage given the government’s carbon emissions targets and instructions to ease up on coal imports. Japan’s PMI fell to 5-month lows while industrial production took a 5.9% hit, with auto production plunging 19.4%. Industrial production in South Korea unexpectedly dipped in May, even as semiconductor output rose. In Europe, the economic data were better. The Euro Area’s manufacturing PMI rose to a record high in June, even as France and Italy eased a little from elevated readings in May. The reopenings certainly helped consumer spending in France jump 10.4% (the latest consumer confidence reading hit its highest level in over a year), and retail sales in Germany rose 4.2% (supported by a 13-month low 5.8% jobless rate). The U.K.’s manufacturing PMI declined 1.7 pts from record highs to a still high 63.9, while it slid in the U.S. as well. And in case you missed it, all but one of the comments in the U.S. survey referred to supply disruptions and the inability to meet demand. In fact, demand (sales) was described as “strong” by a number of industries, but that their hands are tied. Shortages have “limited our ability to supply “, “schedules have been updated to restrict content”, “lack of available labor… Impacting all organizations”, and “lack of labor is killing us.”
I used to go on about how demand > supply is better than demand < supply. But there is something to be said about too much of a “good” thing.