In its update for the second quarter of 2021, HSBC said the Covid-19 pandemic continues to ravage the globe, with India being the current epicentre. But the bank reported that the picture is uneven, and the availability and deployment of vaccines has enabled last autumn’s economic recovery to gather strength. Many of its growth forecasts have, therefore, been upgraded.
HSBC forecast that the strength of recoveries in individual countries will depend on how bad things were in 2020, the speed at which vaccines are rolled out, and the extent to which households have been able to build up savings during periods of lockdown. It predicted that a slow start to vaccinations will delay recoveries in the EU and Japan, while lower levels of government support will inhibit the revival of consumer spending in many emerging economies.
Mark Berrisford-Smith, head of economics, commercial banking, HSBC UK, said: “The combination of strengthening commodity prices and supply bottlenecks (for shipping containers and semiconductors, for example), is putting upward pressure on prices. These issues should soon abate but, looking further ahead, the powerful stimulus provided by governments, central banks, and enforced savings by households could cause a build-up of inflationary pressures.
“In the UK, where the deployment of vaccines has been relatively swift, the economic recovery has resumed after a pause of six months. With some restrictions eased in England from 12 April, economic activity is expected to expand briskly in the coming months, with GDP growth for 2021 now projected to come in at close to 6%.
“The revival will be fuelled by the enforced savings of households, ongoing (albeit tapering) government support, and buoyant fixed investment spending by businesses. Provided that the easing of restrictions continues as planned, then the risks are on the upside, with GDP growth of 7-8% this year being feasible.
“The new trading arrangements with the EU have proved to be problematic for many exporters and importers, especially those who trade in food, animal, and plant products. Exports are expected to make little or no contribution to the recovery process this year, not only because of the new costs and complexities of trading with the EU, but also because of the muted recoveries in many major markets.
“The Bank of England is not expected to provide any further monetary stimulus, and negative interest rates have been taken off the table. Debate is now focused on whether, and to what extent, quantitative easing should be unwound before Bank Rate is increased. Certainly, interest rates are not expected to be hiked before the end of 2022, and perhaps not for some time thereafter.”