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Lost in transition

  • As the global economy is transitioning from deep recession to a still highly uncertain post-pandemic normal, the recovery has become less synchronized. 
  • Soaring demand, coupled with widespread supply bottlenecks, has led to much higher commodity and other input prices, which could persist for some time. Central banks insist these pressures are transitory, while labor market recoveries remain mixed and the passage of current fiscal policy proposals are uncertain. 
  • The unclear nature of this multifaceted transition has become reflected in financial markets, which, having priced the recovery, seem unconvinced of any direction. 
  • In the United States, nonfarm payroll employment registered a disappointing 266,000 gain in April. A number of transitory influences likely contributed to these readings, but the main impact is that April’s report likely closes the door on the FOMC initiating a tapering discussion in June.
  • In the Euro area, looser restrictions to mobility and activity are paving the way for a robust rebound in the service sector and strong growth in second half of the year.
  • In the UK, the Bank of England kept policy unchanged in May. It upgraded its near-term forecasts, but medium-term views are little changed, on which it remains rather circumspect. 
  • In Japan, spreading infections and a State of Emergency extension increase the risk of a technical recession in the second quarter, and further jeopardize an already scaled-back Olympics.
  • In China, labour day holiday data show tourism spending was still below pre-COVID levels, falling behind tourist visit growth, even as domestic tourism recovers.
  • In Emerging Asia, PMIs remain strong, with a demand recovery in North Asia. The resurgence of cases in South Asia has not yet caused a large pullback in PMIs.
  • In Emerging Europe, PMIs across the region were mostly up in April and still firmly above the 50-point expansion mark, highlighting some resilience compared to last year.
  • In Latin America, Brazil’s central bank raised the Selic rate to 3.5% and signaled another 75basis point hike.

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