Saturday, 4 December, 2021
E-paper

Covid, soaring inflation threaten world economy

NEW YORK: The world economy is approaching the northern hemisphere winter in disarray, unable to shake off the coronavirus crisis amid persisting supply disruptions, soaring prices and resurgent outbreaks.

Global surveys of purchasing managers this week are likely to point that way. Among the outcomes anticipated by economists are slowing manufacturing and services activity throughout the euro zone and the UK, and only modest improvement in the US, report agencies.

With parts of Europe confronting renewed restrictions to contain another wave of the virus, China’s rebound fading and rising infections taking hold in America too, much of the global economy is now staring at the threat of a second northern winter of woe, compounded by a cost-of-living squeeze amid surging gas prices and supply bottlenecks.

Europe is at the sharper end of the advanced-world wedge. Record infections in Germany might push authorities to announce new lockdowns, and Austria has already done just that. The continent as a whole is enduring a painful peak in consumer prices.

In the U. S., meanwhile, former Treasury Secretary Lawrence Summers said he sees no more than a 15% chance that “it’s all going to work out well,” with the probabilities much greater for either stubbornly high inflation or a slump in growth.

The extent to which such outcomes play out will inform monetary policy deliberations on the speed of stimulus withdrawal across the Group of Seven, culminating in a grand finale of decisions in mid-December. That’s when central banks, including the U. S. Federal Reserve, hold their final meetings of the year.

“Much of Europe is retreating again in the face of a fourth wave of Covid-19, and survey data next week should give some early clues about the economic impact of rising infection rates.” Elsewhere this week, monetary officials in New Zealand and South Korea may raise interest rates, and minutes of the most recent meetings of the Fed and the European Central Bank will be released.

A pre-holiday feast of economic data and a possible announcement on President Joe Biden’s choice to lead the Federal Reserve will be laid out for investors over the coming week.

The government’s report on personal income and spending, which includes an inflation measure tracked by the Fed, will be the main course on data-heavy Wednesday before markets close the following day for Thanksgiving.