Global Economic Outlook: Dog Days Of Delta

A firm economic recovery is well underway, but the fast-spreading Delta variant is clouding the outlook.

A firm economic recovery is well underway in several advanced economies, led by an improved health situation, strong household finances and higher private sector optimism. Easing of restrictions on hospitality and retail activity have allowed eager consumers to spend more freely on services. Monetary and fiscal stimulus remains ample. The summer should be a prosperous one in most places.

The biggest worry for the global outlook is the alarming rebound of COVID-19 in the form of the Delta variant. Although progress on vaccinations will likely make the new wave far less lethal than previous ones, new public health limitations in response to rising infections could still alter the path of recovery. As San Francisco Federal Reserve Bank President Mary Daly said: “We are not through the pandemic, we are getting through the pandemic.”

Following is our outlook on how major economies are poised to perform during the balance of 2021:

United States

  • The current combination of looser restrictions, returning to work, and catching up on vacations and social gatherings during the peak season of summer has ensured a strong economic rebound in the U.S. But demand-side strength has caught supply off guard, including in labor markets. Supply chain stress is elevated, as are inflation readings; both expected to recede in the months ahead.
  • At the June meeting of the Federal Reserve, the "dot plot" in the quarterly Summary of Economic Projections showed most committee members expect at least one Federal Funds Rate increase by the end of 2023. Fed governors are becoming more confident in their expectations of continued employment gains and moderate inflation. We expect a plan for tapering asset purchases to be announced in the months ahead, which will start in early 2022 and conclude by the middle of next year.