Optimism appeared unruffled in March. The program of US President Joe Biden is raising enormous hopes around the world. Once the plan covering $1900 billion to offset the economic consequences of the Covid-19 validated, the US government is now heading for overhaul and expansion of infrastructure of a similar scale.
This component could also promote green energies. Republicans certainly do not look favourably on these measures. But after pushing for $1.7 trillion in tax breaks at the peak of the business cycle when Donald Trump was in power, they lack the credibility to defend fiscal tightness. In four years, Donald Trump has managed to accumulate more new debt than his predecessor Barack Obama in eight years.
The dollar has gone up.
The announcement of these commitments has already caused the United States to consider playing a leading role in the recovery of the world economy. While the forecast for GDP growth remains unchanged at 3.2% annualised for the first quarter, it has been raised for the remaining three quarters.
Advances in immunization, more than up to target, also support this idea. Despite the negative fiscal consequences, the dollar has pushed upwards. This underscores the strength of the US economy, but also anticipates that the Fed may proceed with rate hikes.
The positive momentum threatens to fuel inflation. Costs are rising, supply problems are limiting production capacity. However, the strength in demand makes it possible to pass some of the costs on to customers.
In the euro area, GDP is expected to fall slightly by 0.4% at the beginning of the year, before returning to positive territory.
Manufacturing PMIs very high
Companies around the world should be able to rely on these US funds. The purchasing managers’ indices (PMIs) are showing clear signs. The reversal of the difference between industry and services imposed by Covid-19 is persisting, at least in Europe.
The record PMI values for the former have, however, led to an increase in those for the latter. Conditions for eurozone industry have never even improved as much as in March, according to the record PMI value of 62.5. Since the start of the survey almost 24 years ago, export orders have never risen so much. Delivery times are also getting longer than ever before, also due to sanitary measures. In the US, the increase in orders was the largest since June 2014 (59.1 points).
Costs rose at the fastest pace in a decade.
Services in the eurozone remain in a contraction zone. But thanks to the manufacturing recovery, the seventh consecutive month below 50 points shows the least decline (48.8).
In the US, services even show a higher expansion than industry (60 points). This score reflects the hopes for a return to normalcy, notably thanks to the progress of vaccination.
US unemployment is falling
The US labour market confirms this, with the situation improving far beyond expectations. The unemployment rate has fallen to 6%. We are not yet at a level that forces the FED to intervene in rates because of upward pressure on wages. However, the US central bank could slow down its asset purchase programme.
The evolution of the unemployment rate is less clear-cut in the euro zone, which is more affected by lockdowns. But a stabilisation at a seven-month low of 8.1% was seen in January-February. Stricter health measures could, however, lead to a deterioration.
The momentary blockage of the Suez Canal is of little concern
However, there was the blockage of the Suez Canal for six days, as well as lockdowns in Europe that put a strain on supply chains. The price of a barrel of crude oil has been sensitive to this, as a significant proportion of black gold passes through the canal. Delivery times may become even longer, and costs may rise. But this does not seem to weaken confidence in the strength of demand to adjust prices.
