Article

Deloitte Economics Monitor

The Monitor analyses the unfolding economic cycle across the world. Updated frequently, it provides a succinct, easy-to-navigate guide to the latest global developments. For suggestions and questions please contact my colleague Peter Ireson.

Ian Stewart, Chief Economist, Deloitte

Last updated: 20 April        

 

Skip to:
Deloitte's GDP growth forecasts | Global economy | Inflation and supply chainsUK economy 
Business sentimentPublic health | Policy response | Financial markets | Climate change

COVID-19 hub

View our research

1/9 - Deloitte’s GDP growth forecasts


 

Skip to:
Deloitte's GDP growth forecasts | Global economy | Inflation and supply chains | UK economy
Business sentiment | Public health | Policy response | Financial markets | Climate change

2/9 - Global economy

Markets have moderated since the beginning of the war

Energy prices soared in the aftermath of Russia’s invasion of Ukraine before falling back. Gas prices remain at a multiple of their pre-pandemic levels and are likely to remain elevated as the EU seeks to reduce its reliance on Russian gas.

Commodity prices rose substantially following the invasion but the prices of a number of commodities have since moderated. Wheat has seen the largest rise in prices among major commodities. The interruption of food supplies may risk a food crisis in emerging markets. The Middle East and North Africa have historically been some of the largest importers of Russian and Ukrainian grain.


Financial exposure and capital controls

The Russian rouble has been highly volatile, falling significantly immediately following the invasion. The imposition of capital controls by the Russian government has supported the currency however, and it is now recovered to near pre-invasion levels.

Many financial institutions have exposure to Russian loans and investments. Valuations of Austrian, Italian and Hungarian banks have been the most affected.


The global economy is less reliant on fossil fuels than in the past

The current spike in energy markets has been compared to the oil price shocks seen in the 1970s. However the rise in oil prices is less severe in percentage terms than seen during the 1970s or following the invasion of Kuwait.

The global economy is also less dependent on oil than in the 1970s.




 

Skip to:
Deloitte's GDP growth forecasts | Global economy | Inflation and supply chains | UK economy
Business sentiment | Public health | Policy response | Financial markets | Climate change

3/9 - Inflation and supply chains

Inflation as measured by consumer price indices has hit multi-decade highs in the UK, US and euro area. The rise in inflation has surprised forecasters.

Higher global energy prices in the wake of invasion of Ukraine have caused domestic gas/electricity costs and petrol/diesel costs to increase far faster than the headline rate of inflation. Disruption in automotive supply chains has led consumers to turn to second-hand cars, driving up their prices.


Shipping costs as measured by the widely-quoted Baltic Exchange Dry Index increased at the beginning of the year but have since fallen back, in part due to lockdowns disrupting production and shipping demand in China.

Industrial order books remain strong in the euro area and the UK while manufacturers in the US continue to report increasing backlogs, suggesting demand and pressure on supply chains remain high.


The US consumer, sometimes called the engine of the world economy, is by a small margin still purchasing lower volumes of services than on the eve of the pandemic. Consumers have diverted much of their spending into goods instead.

This extraordinary demand for goods has led to the prices of goods rising much faster than those of services, reversing a years-long trend.

 

Skip to:
Deloitte's GDP growth forecasts | Global economy | Inflation and supply chains | UK economy
Business sentiment | Public health | Policy response | Financial markets | Climate change

4/9 - UK economy

Labour market recovery continues

GDP grew by 0.1% from January to February, slowing from growth of 0.8% in January. The winding down of vaccine and testing programmes weighed on growth but services including arts, entertainment and hospitality recovered from the Omicron-related slowdown seen in December and January.

Vacancies rose to a record-high 1.288m in the three months to February and the unemployment rate fell further, to 3.8% in the three months to January. The number of payrolled employees rose to a record 29.6m in March but self-employment remains well down, meaning the employment rate improved but remains below pre-pandemic levels.


UK wages, despite growing faster than the post-financial-crisis average, are not keeping pace with inflation. The fall in the purchasing power of wages is likely to add to the cost of living squeeze, with April’s rise in energy bills and National Insurance contributions hitting household budgets. The OBR expect that consumer energy bills could rise by a further £830 in October.

Higher energy prices are set to drive inflation as high as 8% in the second quarter, according to the Bank of England.

Rising prices have damaged UK consumers’ confidence in their own financial situation which has fallen to levels not seen since the darkest days of the global financial crisis.




 

Skip to:
Deloitte's GDP growth forecasts | Global economy | Inflation and supply chains | UK economy
Business sentiment | Public health | Policy response | Financial markets | Climate change

5/9 - Business sentiment and strategies

Profits rise alongside higher costs and supply shortages

Profits of listed corporates have recovered strongly from their pandemic lows, at near record-highs in the US and recovering to pre-pandemic levels elsewhere. However, a record proportion of CFOs in our 2022 Q1 CFO survey expect operating costs to increase over the next 12 months.

UK industrial firms continue to report levels of material and labour shortages last registered in the mid-1970s, owing to Brexit and COVID-19 disruption. The majority of respondents to Deloitte’s 2022 Q1 CFO survey who are experiencing difficulty with recruitment or supply chains expect the disruption to persist for at least a year.


Deloitte’s Q1 2022 CFO survey found CFOs continue to place a strong emphasis on increasing capital expenditure, far above the post-referendum average, despite a rise in external uncertainty from the war in Ukraine and higher inflation.

Businesses also report a shift away from other expansionary strategies such as launching new products or services, or expanding by acquisition. The war in Ukraine has not sparked a renewed emphasis on defensive strategies such as cutting costs or reducing leverage.

 

Skip to:
Deloitte's GDP growth forecasts | Global economy | Inflation and supply chains | UK economy
Business sentiment | Public health | Policy response | Financial markets | Climate change

6/9 - Public health and the lockdown

China struggles to contain Omicron

Global new confirmed case numbers have been falling since mid-March, in part reflecting a fall in testing intensity in many countries. In the UK for example, reported cases are much lower than in January despite survey measures of infection being close to record highs.

Cases in China have hit their highest levels since the beginning of the pandemic, with the country’s zero-covid policy increasingly coming under strain and creating further problems for supply chains.

Hong Kong, which had previously recorded low level of mortality from COVID-19 saw a surge in deaths as the highly infectious Omicron variant infected an elderly population with low vaccine take-up. The great fear is that this could be repeated in China, which also has patchy vaccine coverage in high-risk groups.

Hospital admissions with COVID-19 are falling in the UK. However the total number of hospital beds occupied for any reason recently hit its highest level since the start of the pandemic, testifying to the great strains the NHS is facing.

The threat of new variants and pandemics is likely to remain a risk for growth in the months and years ahead.


 

Skip to:
Deloitte's GDP growth forecasts | Global economy | Inflation and supply chains | UK economy
Business sentiment | Public health | Policy response | Financial markets | Climate change

7/9 - Policy response

Policymakers shift towards removing support

Central banks in advanced economies have started modestly tightening their loose policy stances. Central banks in emerging economies have already started hiking rates in response to depreciatory exchange rate pressure and rising inflation.

The Fed and the Bank of England raised rates by 0.25 percentage points in March.

The extraordinary global fiscal support provided in response to the COVID-19 pandemic is starting to fade.


Ultraloose fiscal and monetary policy stances, particularly in the US, supply chain bottlenecks and the rapid recovery in consumer demand have raised concerns over inflation risk.

Long-term inflation expectations have picked up since the beginning of the pandemic. Central banks continue to expect inflationary pressures to fade as supply chain disruption fades and base effects retreat, but have conceded that inflation is likely to be higher for longer in the short term.

 

Skip to:
Deloitte's GDP growth forecasts | Global economy | Inflation and supply chains | UK economy
Business sentiment | Public health | Policy response | Financial markets | Climate change

8/9 - Financial markets

Financial markets react to the war in Ukraine

Growth stocks, having performed well since the onset of the pandemic, have disappointed so far this year. Value stocks have seen less volatility this year.

Since the beginning of February, global markets have sold off. Energy stocks are the rare exception. The consumer discretionary sector has seen some of the biggest declines - investors are likely concerned that higher inflation will erode consumer purchasing power.


Long-term government bond yields in Europe and the US have shrugged off the impact of the invasion of Ukraine and continued to rise to multi-year highs as investors foresee tightening monetary conditions.

House price growth remains strong in advanced economies, particularly in the UK and the US, supported by low mortgage interest rates and strong demand for suburban single-family homes.

 

Skip to:
Deloitte's GDP growth forecasts | Global economy | Inflation and supply chains | UK economy
Business sentiment | Public health | Policy response | Financial markets | Climate change

9/9 - Climate change

Since 1970, global surface temperatures have risen faster than in any other 50-year period over the past 2,000 years, caused by human activity, and this warming is already driving extreme weather across the globe, according to the UN Intergovernmental Panel on Climate Change.

Carbon emissions in advanced economies like the UK have fallen in recent decades, despite growing economies and populations. Economic activity in the UK has become less carbon-intensive, driven by lower-emission energy generation, energy-efficiency gains and the offshoring of higher-carbon industrial production.


The share of renewables in UK electricity generation has risen steadily over the past decade, while electricity generated by coal has collapsed. Nuclear and gas power continue to account for large shares of electricity generation.

The price of EU carbon emission allowances has risen sharply since the beginning of 202, driven by more ambitious emission targets and the planned expansion of the emission trading scheme’s coverage.

 

Skip to:
Deloitte's GDP growth forecasts | Global economy | Inflation and supply chains | UK economy
Business sentiment | Public health | Policy response | Financial markets | Climate change

Key data sources and interesting articles

Fullwidth SCC. Do not delete! This box/component contains JavaScript that is needed on this page. This message will not be visible when page is activated.

Did you find this useful?