Global reflation intact, but…
In the big picture, the reflationary expansion of the developed markets (DM) remains largely intact, although the fierce dynamics unleashed during the rebound from the initial COVID-19 shock are now naturally slowing.
The key growth-supporting factors are still with us:
In fact, G7 region economic activity this year has surged far above historical norms and will likely remain high (i.e. above potential) in the coming years as well. By contrast, the emerging economies are underperforming their past and their potential. As for inflation in the developed markets, the current upward pressures certainly represent a serious challenge, alongside the much-cited supply chain disruptions. Still, US corporate profit margins have hit an all-time in Q3/2021 and are well above the levels of the stagflationary 1970s. This situation suggests that businesses have a decent safety buffer for absorbing the price pressures and shows that we are still far from a truly stagflationary environment. The latter assessment is also corroborated by the strong ongoing recovery in the labor market, where unemployment is falling at an accelerating pace – rather than rising, which is what usually happens and actually happened in periods of stagflation.
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Note: The next edition of the LGT Beacon is scheduled for January 2022.