Global Economics Intelligence executive summary, September 2021

Rapid growth and strong demand bump against pandemic-related disruptions; energy prices surge, but long-term inflation expectations remain moderate.

Industry continued to expand in August, and forward indicators point to further near-term growth. The pace of growth slowed, however, as strong demand crossed pandemic-related disruptions; the global purchasing managers’ indexes (PMIs) for manufacturing and services in August were 54.1 and 52.9, respectively, compared with readings of 55.4 and 56.3 in July (Exhibit 1). Growth momentum remained strongest in developed economies, but economic data in India and Brazil were also positive. The results are consonant with the OECD’s composite leading indicators, which moderated slightly in August but continue to point to strong growth above prepandemic averages.

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Among individual surveyed economies, most manufacturing PMIs were lower in August. China’s indicator even fell slightly below the expansion line (50), but in the United States and the eurozone, readings were still above 60, pointing to historically rapid growth. In the services sector, PMIs in India and Brazil point to fast expansion.

Economies and businesses experienced supply shortages in August and September, slowing production and stoking inflation. Most notably, demand and prices climbed for crude oil, natural gas, and thermal coal. In McKinsey’s latest executive survey on economic sentiment, respondents cited the pandemic, supply-chain disruptions, and inflation as their top three concerns. Among surveyed economies, consumer inflation is highest in Brazil (9.7%) and Russia (6.7%); central banks there responded with interest-rate hikes (to 6.75% and 6.25%, respectively). In the United States, consumer inflation eased slightly in August, to 5.3%, but has been above 5.0% for four straight months, a mark not seen since 2008.

Mainstream forecasts and standard indicators signal no longer-term inflation danger, however. At the September meeting of its policy committee, the US Federal Reserve kept its key interest near zero, though the bank did signal some tightening will take place in 2022. The OECD expects US inflation to settle to around 2.5% in 2022 and drop below 1.5% in the eurozone. The current TIPS spread—the difference in yields between Treasury bonds and Treasury inflation-protected securities—is signaling moderate inflation of 2.4% to 2.6% over the next five years (Exhibit 2).

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Consumer confidence and retail sales continue to ebb and flow in counterpoint to the crests and troughs of COVID-19 waves. Most recently, consumer confidence indexes weakened globally and in many individual surveyed economies. Retail sales growth remained strong in the United States; elsewhere, it settled to within prepandemic ranges, except in China, where it slowed.

In the most recent data (for July), trade levels remain high, with values moving toward prepandemic averages. The CPB World Trade Monitor measured a retreat of –0.9% in July, however, following the expansion of +0.7% in June; the trade slowdown was centered in the emerging economies. The Container Throughput Index rose to 125.1 in July (123.5 in June); increased traffic in Northern Europe pushed this indicator up, while delays in Chinese ports held it back.

For most surveyed economies, unemployment rates are declining. In the latest data, the rate in the United States fell to 5.2% in August (5.4% in July); in the eurozone and Russia, to 7.6% and 4.5%, respectively, in July (versus 7.8% and 4.8% in June); and in Brazil, to 14.1% in June (14.6% in May).

The equities markets were mixed in September, with some indexes losing ground due to pandemic-related concerns and other disruptions. By the end of the month, the three major US indexes lost an average of 4.8% over the previous 30 days. The US dollar depreciated against major currencies. Except for the equities VIX, where spikes continue, most volatility indexes remain on a downward course.

The pandemic is still very much a threat to lives and livelihoods the world over. The number of officially reported active cases of COVID-19 surpassed 19 million in September, the highest level recorded during the pandemic, while more than one-half million died from COVID-19 in August and September. 1 Vaccinations are helping to reduce the threat, but mainly in developed countries: 44.7% of the total world population received at least one dose of a vaccine as of September 28, but in high- and upper-middle income countries the share is above 60%, while in low-income countries the rate drops to 2.7%. 2


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 September 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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