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Morning Notes — Early Cycle

Early Cycle

June 28, 2021

Global economic growth in the first half of the year will probably come in up +4.6%, which is a full 2 percentage points higher than consensus forecasts at the beginning of the year.  It’s important to recognize the upside in growth happened despite two virus waves, both larger than the initial one.  The other upside surprise in the first 6 months was global core inflation running close to +3%, which was the largest increase in over 25 years.  First half policy support from the US was a huge input, but China was tightening.  The US is expected to ease up on policy stimulus later this year as European growth begins to recover on increased vaccinations.  That leaves the rest of Asia and Latin America as growth drivers sometime next year. Prepare for global growth around +6.5% in the second half with inflation running a bit higher to something above 3%. The inflation story is highly influenced by supply constraints that shouldn’t become a sustained drag on demand.  Much of the demand for goods in the first six months was met by drawing down inventories, with an eventual restocking providing another tailwind for growth later this year.  The US won’t have the same level of support in H2 and next year, but will continue to drive global growth with booming labor income, a household savings rate above 12%, lean inventories and business capex picking up.  It’s seems far too early to position for late cycle dynamics that includes lower bond yields and growth sector leadership.

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