The COVID-19 pandemic is resurging across the globe, with new cases rising to 500,000 or more daily in late March amid a proliferation of virus variants (Exhibit 1). Several kinds of vaccines are now available; coverage varies by country. A variety of factors is delaying wider and faster distribution, with the Global South facing greater challenges. In many countries, the policy tug-of-war over reopening the economy is intensifying as the pain of maintaining restrictions frays nerves and erodes personal and business wherewithal.
Globally, economic indicators have been relatively positive, a sign that growth could accelerate once the pandemic is better controlled. A more positive mood is likewise reflected in the latest results from McKinsey’s global survey of economic sentiment. Governments continue to deepen their commitments to supportive fiscal and policy measures. The latest US stimulus package, of $1.9 trillion, defines the stance. Many forecasters have upwardly revised growth predictions accordingly.
Amid a trade- and manufacturing-based recovery, the services sector has begun to improve. The global purchasing managers’ index (PMI) for manufacturing (J.P. Morgan) expanded to 53.9 in February (53.6 in January), while the services PMI reached 52.9 (51.6 in January). Trade growth remains strong as global indexes are at or near historic highs: the CPB World Trade Monitor, for example, expanded 2.8% in January, to 128.3, while at the same time, the Container Throughput Index rose to 120.8 (119.0 in December).
Commodity prices are on the rise, pushed up by strong demand from the United States and China (Exhibit 2). Prices of industrial metals have climbed significantly in the new year. The FAO Food Price Index, which is affected by climatic as well as market factors, has risen for nine straight months, and in February, reached its highest level since July 2014 (Exhibit 3). Oil prices, which are also affected by external dynamics, rebounded, reaching $64–$68 (Brent), levels not seen since before the pandemic. At times posing a danger to the recovery in India, inflation is now rising more generally. Even in the eurozone, a positive annual inflation rate of 0.9% was recorded in January and February. The central banks of Russia and Brazil, where inflation has risen above target rates, raised policy interest rates in response, respectively to 4.5% (+0.25%) and 2.75% (+0.75%).
In the United States, where the Federal Reserve Bank’s policy interest rate remains at 0 to 0.25%, chair Jerome Powell assured Congress that the Fed has the tools to adjust for rising inflation. At the same time, Treasury Secretary Janet Yellen endorsed the recent $1.9 trillion government stimulus package as necessary to fight unemployment and poverty. She also suggested that planned public-infrastructure investments could be financed by partly restoring the corporate tax rate (which was reduced in 2017 by 14 percentage points).
Officially, unemployment has been declining in most surveyed economies. The eurozone has been the exception, with overall unemployment stuck at 8.1% for several months running. A troubling indicator, however, has been the labor-force participation rate, which in many countries has been declining along with the unemployment counts, suggesting changes in the dimensions of the workforce.
Will productivity and growth return after the COVID-19 crisis?
The financial markets have been relatively quiet in February and March. The bond-yield measure of inflation expectations for the United States (five- and ten-year TIPS spread) has lately risen to 2.3% to 2.5% for the medium and long terms. Globally, a mixed performance was observed in equity markets, with the biggest gains in Europe. The US dollar remained broadly stable in March, while the euro, yen, and real weakened. Volatility indexes (VIX) generally eased, except for the oil index, where increasing prices pushed volatility higher. Yields on ten-year government bonds improved in most surveyed economies, as growth prospects brightened.
McKinsey’s Global Economics Intelligence (GEI) provides macroeconomic data and analysis of the world economy. Each monthly release includes an executive summary on global critical trends and risks, as well as focused insights on the latest national and regional developments. View the full report for March 2021 here. Detailed visualized data for the global economy, with focused reports on selected individual economies, are also provided as PDF downloads on McKinsey.com. The reports are available free to email subscribers and through the McKinsey Insights app. To add a name to our subscriber list, click here. GEI is a joint project of McKinsey’s Strategy & Corporate Finance Practice and the McKinsey Global Institute.
