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Yesterday, the organization for economic cooperation and development updated its prospects for the world economy, suggesting that recovery is gaining momentum and will continue to accelerate in the second half of the year. It now forecasts global GDP to grow around 5.8 % in 2021 (compared with 4.2% projected in December) and at 4.4% in 2022 (3.7% in December).
Long story short, this decision has been fueled by vaccine rollouts, which allow businesses to reopen and operate safely, as well as a multi-trillion stimulus package from the US government. Most importantly, the OECD suggested central banks in advanced economies keep lax financial conditions, claiming that the recent spike in inflation is transitory and cause by supply chain bottlenecks.
In the case of the UK, the OECD warned that country´s economy could suffer more longer-term economic damage than other G7 industrialized nations, mainly due to Brexit. Still, the UK GDP is expected to rise by 7.2% in 2021, the fastest growth since the second world war. For 2022, on the other hand, growth has been revised to 5.5%, from 4.7%.
It is worth mentioning that manufacturing activity in the UK saw a record increase in the previous month. The UK PMI index rose to 65.6 in May from 60.9 in April. Thus, the British economy is on the track to full economic recovery. The only problem is that price pressures also increase, forcing the central bank to carefully monitor Britain’s booming housing market. The average UK house price climbed 10.2% in the year to March, the highest annual growth rate since August 2007.
The OECD report also suggests that the global economic recovery will be uneven due to the ongoing outbreaks of the pandemic, especially in Asia. In Europe and the US, meanwhile, things are getting better every day. Last week, for example, the European Union agreed to reopen its borders to fully vaccinated travelers, including Americans, and people from the list of countries safe for Covid. As Mario Draghi said, “Whatever it takes”, only this time to save the tourist season.
The question then emerges, what should investors do?
Last week the US authorities recorded a new record for the pandemic in passenger traffic at the country’s airports. Despite this, the shares of American Airlines not only did not rise but on the contrary fell. Most likely, worked the principle “buy on rumors, sell on news”. Thus, it might be late to buy airline stocks…
Instead, it is worth paying attention to the manufacturing sector, as well as the housing and utilities sector. As borders open, trade recovers, and re-employment is accompanied by a sharp rise in consumption. If oil and commodity prices continue to rise, then perhaps consumer stocks will benefit.
