April's Bumper Monthly Economic Update

The Ever Given’s canal mishap is surely a metaphor for the uneven global recovery. In our April economic update, we look at the growing divergence between the US and eurozone (EZU), the potential impact of the pandemic for cohesion in Europe and the greening of monetary policy, and the outlook for inflation amid higher shipping costs and chip shortages.

April Economic Update

Executive summary

One of the main themes in the global economy is the growing divergence between the US and the eurozone. Or as Eurosceptics would say, the growing divergence between the eurozone and the rest of the developed world.

While the US economy is powering ahead, boosted by the Biden stimulus and a much faster vaccination campaign, the eurozone economy once again sees almost everything that could go wrong go wrong. In this regard, the sight of tugboats trying to unstick the containership Ever Given in the Suez Canal is to some extent a metaphor for the difficulty in getting the eurozone recovery on a sustainable course.

A third wave of the pandemic has pushed several eurozone countries to tighten lockdown measures again or to extend them, jeopardizing a reopening of the economy in April. Exponential growth of the vaccination pace is still possible after Easter but currently looks too good to be true. And as if things couldn’t get any worse, the fact that the temporary blockage of the Suez Canal will mainly hit Asia and Europe but not the US, adds to the eurozone’s problems. Not to mention the fact that the German Constitutional Court is once again leaving its mark on European crisis tools, having asked German President Frank-Walter Steinmeier to stop the ratification of the flagship symbol of last year’s European solidarity, the European Recovery Fund. The balance of economic recovery is currently clearly tilted to the US, with all potential effects on bond yields and currencies.

However, there is at least another global theme which will hit the entire developed world and not only Europe: the increase in production costs on the back of rising container and shipping costs, shortages in the delivery of semiconductors and raw materials. These higher production costs will no doubt also find their way into consumer price inflation in the coming months.

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Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information ...

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