Forecasts of growth in the UK are being revised up. The EY ITEM Club joined the 6% club last month, projecting growth of 6.8% this year. Bloomberg and JP Morgan revised growth forecasts to 7%. The latest estimate from Goldman Sachs suggests growth of 7.8% is possible, outpacing the USA in 2021.
Uncle Sam's shop grew at an annualized rate of 6.4% in the first quarter, according to the Bureau of Economic Affairs. The U.S. is on track to exceed the IMF forecasts made in April of 6.4% growth.
The Federal Reserve upgraded its view of the US economic recovery this week. Officials noted an improvement in the economy and offered a brighter picture in the short term. "Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened," the FOMC said.
Hardly surprising, US household incomes increased by 21% in April as Uncle Joe's stimulus checks dropped through the letterbox. The checks will help to fuel the economic revival. Savings rates leapt to 28% in March. Forced savings during the pandemic, suggest consumer spending is set to soar, supporting the recovery.
In Europe ...
In the EU, growth fell by -1.7% in the first quarter. Spain and Portugal were the most badly hit, with growth down by -4.3% and -5.4% respectively. The Italian economy was down by 1.4%. Just France and Lithuania were in growth territory. The French economy increased growth, up by 1.5%.
The IMF forecasts growth of 4.4% in the EU area this year following a setback of around 6.5% last year. More suspect is the 12.5% growth penciled in for India in the year. This suggests China will emerge as the fastest growing economy in the world this year at 8.4%.
Modern Monetary Policy ...
In the USA the Fed maintained the easy monetary stance. The Fedd funds rate remains within a target range of 0% and 0.25%. The asset purchase program is set to continue as $120 billion dollars per month. The Fed has set a high bar before the removal of any stimulus is imminent.
"Substantial further progress will have to be made toward the goals of full employment". Inflation may rise above target in the short term but this is a result of "transitory factors" which will drop out of the system by the end of the year. The Fed continues "Topping up the punch-bowl and handing out the spliffs." Base rates are expected to remain on hold into 2023.
So What of Inflation ...
In the UK house prices increased by 7.1% in April according to the latest data from Nationwide. Annual growth rates could hit ten per cent by June if prices are flat over the next new months. Inflation CPI remains subdued. Central bank stimulus continues. In the UK Money Supply M4 increased by 12.5%. In the US Money Supply M2 increased by 24%. Will excess liquidity and rising household spending lead to higher inflation? Perhaps!
Soon it will be time to worry about what happens next, after what happens next. For the moment forecasts of growth are just getting better and better ... enjoy the what happens next ...
That's all for this week .. we will be back with more next week. Our next Saturday Economist Live on Zoom is on Thursday 27th May at 9:00 am. Don't Miss that ... Fast moving, content rich and fun ... and slightly controversial ... of course ...
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