Economic recovery from Covid ‘running out of steam’ – OECD

The world’s major economies have seen their rapid recovery after easing Covid restrictions begin to run out of steam in the past month as a resurgence in the virus depressed consumer spending, according to the Organisation for Economic Cooperation and Development.

There are signs that the recovery in the US and Japan is losing momentum, the OECD said, while parts of Europe and China have slowed as consumers remain reluctant to eat out, visit attractions and shop as they did before the pandemic.

The Paris-based organisation said data supplied by its 38 member countries showed that most major economies had passed their 2021 peak levels of growth and while they were still expanding, it was at a slower pace.

Picking out the UK, France and Germany as among those countries in Europe that have begun to see domestic industries stutter and trade with the rest of the world slip down a gear, the OECD said they had been joined by Brazil and Russia in the slow lane.

Economists at the OECD said there were likely to be ebbs and flows in the pattern of recovery because “despite the gradual lifting of Covid-19 containment measures in some countries and the progress of vaccination campaigns, persisting uncertainties might result in higher than usual fluctuations in the composite leading indicators and its components”.

The indicators cover a range of business and consumer surveys, retail sales data, wages growth and international trade alongside figures on the employment and output of the manufacturing, services and construction sectors.

A bounceback last week in the number of jobs created in the US gave a temporary lift to stock markets increasingly concerned that governments will need to reimpose restrictions to prevent the virus spreading.

After reaching $77 a barrel, Brent crude prices have slipped back to below $70 in response to growing concerns that global economic growth has taken a backward step.

Shilan Shah, a senior economist in Capital Economics’ India office, said the outlook for the economies of many emerging markets was also grim as the spread of the Delta variant gathered pace.

In a note headlined the “outlook darkens”, he said: “Experience from elsewhere shows that the economic hit from new virus waves has tended to be less severe than last year.

“But weaker fiscal positions and the limited capacity of health systems to deal with new outbreaks mean that many frontiers are likely to be hit harder than their richer emerging market or developing market peers.”

Ethiopia, Ecuador, Kenya, Ghana and Sri Lanka were highlighted by Shah as having large debts and increasingly heavy demands on their health systems at a time when tourism and other key industries are operating below their capacity.

He said there was likely to be a delay before tourism returned to its pre-pandemic levels, which would hit many countries in Asia and Africa that depend on visitors from abroad to generate foreign exchange.

A fall in demand for basic raw materials from China and other Asian countries would hit metal producers from Peru to Zambia, he added.

Guy Foster, chief strategist at wealth manager Brewin Dolphin, said the slowing growth prospects meant concerns about inflation appear to be diminishing.

“The falling oil price is a major disinflationary force in the US and that should make the pace of price gains more sustainable while we wait for supply chains to start flowing once again.”

He said it may take a while for supply lines from China to Europe and the US to flow normally after Beijing raised the prospect of lockdowns returning to China. “This means supply chain issues could worsen,” he said.