Economy and markets: analysis

Economy and markets: analysis
After experiencing the worst recession in modern economic history in the first half of 2020, the world economy has returned to growth.

Chronologically, the rebound first started in China and then was very strong in the United States thanks to budgetary support. By following a more difficult path due to sanitary conditions, European economies have also recovered. This sharp rebound phase, which was also a source of multiple tensions, seems to have peaked at the beginning of the summer according to business surveys (shortness of catching up in the most advanced countries, supply constraints disrupting the supply chains. production in industry). Several specific brakes are weighing down in particular on Chinese growth (localized jump in the epidemic, severe constraints on energy availability. Chinese industrial production has been declining since the start of the year, which is very unusual.
In the United States, inflation had accelerated markedly in the first half of the year (base effects on energy prices, direct and indirect consequences in particular on the automobile market of the shortages mentioned above) to peak at 5.4% on one year in July. Some signs of deceleration are however noticeable in August. In the euro zone, the rise in prices is generally less pronounced, but the normalization of the VAT rate across the Rhine, which had been temporarily lowered in the last months of 2020, is reflected in facial high inflation. Added to this is a shock on energy prices: in addition to the firmness of the oil price, which exceeds its pre-crisis level, the sharp rise in the price of gas which has led to a jump in the price of electricity will in the short term, drain the purchasing power of households.
 
In this context, central banks will have to act with tact. The deceleration of growth from a very high level cannot be an obstacle to sketching the start of monetary normalization. Inflation dynamics should not lead to overreacting either. The US central bank (the Fed) has warned it may announce a drop in asset purchases soon. The ECB indicated at the beginning of September that it was modulating the pace of its asset purchases as part of its program to fight the pandemic, but without changing the target amount of this program for March 2022. An increase in key rates by the Fed and even more of the ECB is not for now. On the other hand, faced with a rise in inflation linked to the acceleration in energy and food prices, several central banks in emerging countries (Brazil, Russia) have raised their key rates in recent months. Still very low (the French 10-year rate remained in negative territory until mid-September), long-term interest rates have started to recover with the prospect of the start of monetary policy normalization. The fourth epidemic wave which affected many countries this summer with certain time lags, the less positive signals sent by the business tendency surveys and fears that inflation will not be sustained any longer have led investors to be more cautious. The CAC 40 ended September at 6,520 points, very close to its level observed at the end of June. Despite everything, it has increased by 17.5% since the start of 2021.