Expectations of a recovery in the second quarter were very high, especially in the US. The GDP between April and June and published at the end of July came out at +6.5%. This was about two percentage points below the consensus.
The supply chain at the centre of the debate
The pandemic is hardly a factor. However, the problems in the supply chain were strongly felt. The trap of just-in-time production, synonymous with maximum efficiency, has closed in on the industry. It is looking for alternatives by relocating production, seeking alternative suppliers, and rebuilding stocks of absolutely essential parts.
Costs are rising sharply
The semiconductor shortage, which is affecting the automotive industry in particular, is persisting well beyond early estimates of its duration. More and more sectors are affected by cost increases, stock-outs and supply chain management problems. The consequences can include temporary production stoppages. The closures of the port of Shenzhen (China) due to outbreaks of Covid-19 cases have not helped. The Baltic Dry index of shipping costs remains at a five-year high. Prices for a barrel of crude oil also remain at a one-year high of around USD 75.
Inflation at a 13-year high
The labour market is also struggling. Recruiting employees to fill orders is difficult. These numerous bottlenecks led to inflation rising to 5.4% in June – the highest level for 13 years. However, the IHS Markit PMI indices show that these limitations are not weighing heavily on confidence. On the manufacturing side, the 63.1 points marks a new record. Although costs are rising sharply, both demand and production volumes have accelerated.
Potential normalization in the second half of the year
The situation could also normalize somewhat in the second half of this year. The first signs of an easing are already visible, especially in the ISM indices. This should also ease the pressure on the Fed to tighten sooner than it expects. The IHS Markit PMI for services continues to decline from its peak in May, falling to 59.8 points. Sales price increases are causing customers to hesitate. This shows that the balance between prices, demand, labour market developments and wages is difficult to find in a period characterised by high percentages for both growth and inflation.
Fewer extremes in the Old Continent
Eurozone companies cannot escape supply chain management problems either. But both estimated GDP growth in the second quarter (at 2%) and inflation in July (at 2.2%) remain at much more reasonable levels than across the Atlantic. This points to rather tenuous real growth. The ECB’s redefinition of its approach to inflation, which it considers to be transitory, nevertheless allows it to continue its accommodating policy. Even with 750 billions over six years, the EU’s post-covid stimulus package remains more modest than the efforts in the U.S.
