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Central banks
Opinion
David Brown
David Brown

Macroscope | In China and Europe, the work of policy super stimulus is not over yet

  • Supply-side logjams, rising inflation and the Omicron Covid-19 variant are all headwinds to global growth
  • China and Germany are well placed to benefit once normal business conditions return, but keeping monetary and fiscal policy conditions loose will help fuel domestic consumption in the interim in China at least

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Delivery workers sort parcels at a makeshift logistics station near Beijing’s central business district during the Singles’ Day shopping festival on November 11. China’s dual circulation strategy aims to shift focus to domestic-driven growth, but the results of this may not be apparent in the short term. Photo: Reuters
David Brown

The global economy still has a lot of catching up to do as the world bounces back from the Covid-19 pandemic. The first phase of recovery has been spectacular, with growth expanding exponentially in the first half of 2021 with so much pent-up demand coming back on stream after the lockdowns, factory closures and world trade dislocations of 2020.

The second phase of recovery looks a lot less certain, though. Supply-side logjams are taking longer to unwind, with global production still hamstrung by capacity constraints, labour shortfalls and a dire shortage of essential manufacturing components such as computer chips.
And new obstacles are emerging that may impede the recovery, not least the impact of rising inflation and the fear of central banks striking back with interest rate tightening sooner rather than later.
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The emergence of the new Omicron Covid-19 variant could not have not come at a worse moment. It’s a major headache for global policymakers conflicted about whether to keep nurturing the shoots of recovery and risk higher inflation, or face down inflation at the risk of strangling recovery. The world is not out of the woods yet by a long stretch.

03:17

Japan beef bowls and coffee costing more as workers feel the pinch from food price hike

Japan beef bowls and coffee costing more as workers feel the pinch from food price hike
There’s still a huge backlog of global demand waiting to be met, and China and Germany are both uniquely positioned to fill the gap as normal business conditions return. Whether it is consumer goods, machine tools or manufacturing raw materials, the world’s two leading net exporting nations stand to profit as supply-chain logjams gradually ease.

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