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Monthly economic update: Emerging from the shadows

There’s a new sense of optimism in Europe and the US that freedom from restrictions is just around the corner. The mood in Asia is darker. For all countries, for all markets, Covid-19 continues to cast a shadow over everything we do.

Emerging from the shadow

The return of summer in Europe coincides with a new sense of optimism that freedom from restrictions is just around the corner. Economies are booming in the continent and in the US, but fears of a fourth wave of Covid-19 are real. And countries in Asia are already seeing a rise in new infections and subsequent shutdowns.

The US recovery is powering on, but there are worries that the supply capacity of the economy isn't keeping pace. We think the Federal Reserve will soon switch position and acknowledge that inflation may not be as transitory as first thought, paving the way for the first steps towards policy “normalisation” later in the year.

The UK's final step of the reopening looks set to be postponed amid rapidly rising Covid-19 cases. But barring a return to stricter rules, the economic damage may be pretty small, though much hinges on whether higher case numbers begin to dent safety perceptions among consumers.

The small number of Covid cases in China's Guangdong province is disrupting production and shipments. Supply chains are once again being hit. If Covid can't be contained before the summer holidays, it will also hurt China's retail sales. Bucking the global trend in economic re-opening, Asia has recently been restricting movements again, which is leading us to trim many of our growth forecasts. If China goes further down this track, then we will have to do more than just trim.

Read the report on Think