By the end of the year, the economy was in recovery mode despite the Omicron variant of Covid-19. A rather optimistic view of the latter has emerged. It is certainly more contagious than previous variants, but would result in fewer severe cases. Omicron thus offers the hope of ending the pandemic, by infecting everyone, with limited danger.
Christmas business largely saved
On the positive side, health measures to contain the variant came too late to reduce consumption. Europeans were much more concerned than Americans, whose confidence rose in December. This momentum was supported by the labour market: the number of weekly job vacancies in the US fell back below the 200,000 mark. In the euro area, even though sentiment is not good, the volume of loans to households reached a 13-year high.
Energy remains expensive
For example, oil stocks in the US fell for five consecutive weeks. The price of some varieties of crude oil approached $80 per barrel. In Europe, gas prices reached record highs due to fears that additional supplies from Russia might fail. Geopolitical tensions are being felt. Deliveries of liquefied natural gas have eased the situation somewhat, but prices remain about five times higher than the five-year average.
Central banks act on inflation
The 2021 GDP estimates for the US and the euro area point to a clear recovery from the previous year, but not to the record level of 2019. This growth combined with continued tightness in supply also means that inflation fears persist. Even the ECB is beginning to consider reducing its asset purchases, while still refraining from intervening in interest rates. As for the Fed, it surprised the market in mid-December by announcing that it would accelerate the pace of asset purchases. This also means that by 2022, it could announce up to three rate hikes. The Bank of England has already decided on a rate hike of 15 basis points to 0.25%. In this context of
inflationary pressures, the fact that the second part of the US President Biden’s stimulus program remains blocked is rather positive. The US government is already facing repeated votes to raise the debt ceiling, in order to remain operational.
PMI indices on hold
Purchasing managers’ indices came in below forecasts for both industry and services. In the United States, costs are rising not only because of raw material prices, but also because of the continuing difficulty in recruiting employees. Within the industry, the IHS Markit PMI even reached a 12-month low of 57.8 points. The services PMI was at 57.5 points. Employment growth paused due to capacity problems. Nevertheless, confidence is at its highest level since November 2020, thanks to hopes for further customer acquisitions and new orders. On the European side, health measures were felt in the services PMI, which fell by 2.6 points to 53.3. The restrictions are having a particularly negative impact on tourism and leisure activities. The manufacturing index held up much better, with a score of 58 points. Job creation reached a fourmonth
high, and some easing was felt in the supply chains. The Baltic Dry cost index was also up, with a score of 58 points. The Baltic Dry index of maritime transport costs has decreased to its April 2021 level, at less than half its October peak.
