This week we have seen promising signs of the global economy reawakening from the forced hibernation brought about by the pandemic. Bumper retail sales in the US and a reduction in the number of people being laid-off painted a positive picture, made even better by further reassurance from the central bank that they have no plans to pull the rug away for a while. This was followed by huge growth numbers coming out of China with reports of record breaking 18 per cent growth. The UK also started the journey towards recovery with the first major lifting of restrictions. Elsewhere things don’t look so bright, with huge discrepancies in how different regions are doing in terms of both infection rates and vaccinations.
Much of Europe and parts of India have reintroduced lockdowns as they battle fresh Covid outbreaks. With their vaccination programs beginning to pick up following initial supply issues, there is at least light at the end of the tunnel. The most worrying news comes from Latin America, especially Chile which is battling a new wave of coronavirus cases despite having vaccinated a large proportion of its population.
UK: SIGNS OF RECOVERY BUT THERE ARE STILL REASONS TO BE CAUTIOUS
There were more encouraging signs of economic recovery in the UK this week. GDP grew 0.4 per cent in February, after falling 2.2 per cent in January, and international trade also recovered some of the contraction seen in January. The British Retail Consortium reported an increase in consumer spending in advance of coronavirus restrictions lifting this month and the number of job vacancies has recovered to pre-pandemic levels as businesses prepare to reopen.
Not all the positive economic data is as good as it appears. Hourly productivity improved in 2020 and average salaries have also increased since the start of the pandemic. However, a large part of this apparent improvement is due to more low-paid workers losing their jobs over the past 12 months. Meanwhile the unemployment rate remains around 5 per cent but large number of people remain on furlough and there has been an increase in the number of people classed as economically inactive, or no longer seeking employment, and are not included in the headline figure.
CHINA: Record GDP Growth As China Leads Global Recovery
China posted record economic growth in the first three months of the year as quarterly GDP increased by 18.3 per cent. The year-on-year figure was boosted by the poor performance a year ago when China was struggling with the Covid-19 outbreak but still highlights how far ahead China is compared with other major economies. China was the only major economy to see GDP grow in 2020 and its economic expansion, based on industrial production, has helped support the recent rise in commodity prices. It has also seen its share of global trade increase steadily in recent months.
China is likely to provide a leading indicator for other countries’ recoveries and whether the fast pace of growth can be sustained. It is a slightly different picture for Chinese equity markets which grew strongly after the sell-off last March but performance since the beginning of 2021 has been poor. The CSI 300 index hit an all-time high in February but has fallen around 15 per cent since then and is down 5 per cent so far this year.
EQUITIES: Chip Makers Cash In On Global Shortage
Producers of microchips were some of the best performing stocks in 2020 as lockdown fuelled a boom in online activity and demand for connected devices like laptops. Unlike some other technology stocks, semiconductor manufacturers have seen their share prices continue to rise in 2021 helped by a global shortage of microchips. This week’s update from Taiwan Semiconductor Manufacturing Co, one of the leading chip makers, underlined the strong growth in this sector, with net profits up 19 per cent in the first three months of the year.
The global chip shortage is unlikely to end soon. This week the chief executives of both Intel and Taiwan Semiconductor said their plans to expand production would not see the shortage addressed before 2023 as demand for laptops and mobile devices remains high. The disruption to supply has had a big knock-on effect on other industries, with car makers and medical equipment manufacturers among the businesses experiencing disruption, and underlines the growing strategic importance of the microchip industry.