Global Economic Outlook: Delta Changes The Outlook

In mathematics, the Greek letter delta signifies change. Indeed, the Delta variant of COVID-19 has been a change agent for the world’s economies.

In some countries, high vaccination rates have held down the number of severe cases, allowing economies to remain open. In others, the latest wave of infections is forcing new lockdowns and limitations that challenge commerce. As we wrote recently, global production and global logistics systems remain impaired.

Measures aimed at containing COVID-19 suppress growth, but they also stress inflation. This leaves central banks with difficult policy choices. The Federal Reserve and the Bank of England are preparing to wind down their stimulus programs, while the European Central Bank and the People’s Bank of China are adding support to their economies.

Below is our outlook on how major economies are poised to perform during the balance of 2021. The influence of the Delta variant is noted in each section.

United States

  • The U.S. economy marked an important milestone in the second quarter, with gross domestic product (GDP) surpassing its pre-pandemic level. The economy grew at a 6.5% annualized rate last quarter, led by strong consumption. The outcome fell short of expectations, though, as producers struggled to replenish inventories. As discussed in our latest U.S. economic outlook, we think that bottlenecks will ease during the balance of 2021, setting the stage for robust growth in the second half.
  • The U.S. labor market is regaining momentum. 943,000 jobs were created in July, with the unemployment rate falling to 5.4%. Still, over six million people are estimated to be out of the labor force but are seeking employment. The latest outbreak of COVID-19, while severe, is not likely to result in renewed business closures; we therefore expect employment gains to remain very positive through the remainder of the year.