Global Economics Intelligence executive summary, May 2021

Amid the agonies of a second pandemic year, the recovery gathers further momentum; business leaders and policy makers ponder rising inflation.

The second pandemic year has been characterized by the paradoxical coexistence of a volatile pandemic and rebounding global growth. The disastrous wave of COVID-19 cases in India, the constant pandemic pressure in Brazil, and the sporadic outbreaks in Europe and the United States in 2021 remind businesses and governments of the continued fragile state of public health globally. About half the 3.5 million COVID-19 deaths recorded since February 2020 have happened in the past five months.

In those same months, industrial output increased across the globe, with significant gains in manufacturing, services, and trade. Most surveyed economies are reviving, with the world’s two largest economies in the lead. The Organisation for Economic Co-operation and Development (OECD) composite leading indicators for May point to strong growth momentum in the United States and China, while forecasting institutions expect both economies to expand at outsize rates in 2021, more than making up for growth lost to the pandemic. Responses to McKinsey’s survey of global economic sentiment have become more positive as well.

The unprecedented economic event—a global recession caused by supply being turned off—was bound to cause unfamiliar distortions and hard-to-read data. Most analysts agree, however, that pent-up demand, supply disruptions, and massive government stimulus and policy support amounted to a recipe for the return of inflation. Its arrival in recent months was long predicted. In May, the United States reported 4.2% annual consumer inflation, while inflation rose to 2% in the eurozone (Exhibit 1).

Producer prices in emerging economies climbed generally but skyrocketed in Brazil and Russia.
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Commodity prices have been climbing globally, and in emerging economies, producer prices are rising. In Brazil and Russia, these prices even skyrocketed, prompting central banks to raise policy interest rates (Exhibit 2).

The Container Throughput Index rose 122.6 in March, from 121.4 in February. Activity decreased in Europe because of new lockdown measures, while traffic in Chinese ports increased slightly.
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In the United States, both Federal Reserve chair Jerome Powell and Treasury secretary Janet Yellen continue to assuage inflation fears, with Secretary Yellen lately suggesting that under certain circumstances, the Fed might respond with a moderate rate hike only (from the current range of 0 to 0.25%). The Biden administration advanced a budget plan of $6 trillion for 2022. The plan, which would strengthen the country’s social safety net while providing significant infrastructure funding, is itself an expression of confidence that inflation can be kept under control.

In the most recent data, the global consumer confidence indicator measured overall optimism in April, having gained momentum over the past five months. In some countries, however, individual indicators reveal more consumer caution. Retail sales improved in the United States and China, though year-over-year growth rates are very high due to the low base effect from 2020.

The recovery continues to be manufacturing- and trade-led, but lately, growth has come to the services sector in many surveyed economies. Notably, the global purchasing managers’ indexes (PMIs) point to accelerating expansion in both sectors, with record-high readings. Manufacturing in all individual surveyed economies is expanding. Services-sector growth strengthened in the United States and China, but the services PMI fell further into contraction in Brazil.

In trade, the CPB World Trade Monitor recorded a 2.2% expansion in March, resulting in trade growth of 3.5% overall in the first quarter of 2021. The growth has been driven by imports to emerging economies and exports from developed economies. In individual surveyed economies, the latest data come from back in February, which explains why China was the only country in which imports and exports did not increase on a monthly basis (due to the holiday effect—Year of the Ox). The Container Throughput Index, meanwhile, rose to 124.7 in March, on improved traffic in Chinese ports, and in April jumped to 127.1, as traffic in European ports increased significantly (Exhibit 3).

Inflation for consumers and producers increased in developed economies, driven by higher commodity prices.
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In the latest data, official unemployment rates ticked up in the United States (6.0% in March, 6.1% in April) and Brazil (14.4% in February); the rates declined in the eurozone and Russia (8.4% and 5.4%, respectively, in March).

In the financial markets, inflation expectations jumped—though only to 2.5% over ten years—as reflected in the difference between the yields on conventional and inflation-indexed US Treasuries. Surveyed equity markets were relatively active and on the whole positive, with some markets gaining momentum and others remaining flat. The US dollar depreciated against a majority of currencies globally. Volatility indexes rose slightly in May; government bond yields increased for some countries in Europe.

At the end of April, China’s National Bureau of Statistics released data from its 2020 census. The results illustrate an aspect of the demographic challenges that many leading economies will face in the coming decade. China’s population, still the world’s largest at 1.41 billion, grew by 5.38% (72 million) over the past ten years. The rate of growth is slowing down, and the population is also getting older: 13.5% are above the age of 65 (8.9% in the 2010 census). The demographic composition of China’s population has aged more rapidly than in other countries due to improved healthcare and the one-child policy, which was in effect until 2016. For economic planners, slow growth in the size of the workforce adds impetus to the adoption of automation technology. Further insights from the census show a more educated and urbanizing population, factors which also tend to limit birth rates, and indeed, average family size has shrunk, to 2.6 persons in 2020, from 3.1 in 2010.


McKinsey’s Global Economics Intelligence (GEI) provides macroeconomic data and analysis of the world economy. Each monthly release includes an executive summary on global critical trends and risks, as well as focused insights on the latest national and regional developments. View the full report for May 2021 here. Detailed visualized data for the global economy, with focused reports on selected individual economies, are also provided as PDF downloads on McKinsey.com. The reports are available free to email subscribers and through the McKinsey Insights app. To add a name to our subscriber list, click here. GEI is a joint project of McKinsey’s Strategy & Corporate Finance Practice and the McKinsey Global Institute.

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