Summary

Economic activity
At the global level, economic activity continued to expand, albeit at a measurably moderating pace, amid a combination of factors, most prominently persistent supply bottlenecks. The Purchasing Managers’ Index data for August and September 2021 suggest that momentum moderated in advanced economies, although it remained above its historical average, while it was softer in emerging market economies. At the same time, global supplier delivery times remained at record highs in September, owing primarily to strong demand. World trade growth also continued to soften, albeit from still high levels. Price pressures remain elevated on account of increasing food and energy inflation, reflecting the rebound from the low price levels recorded immediately after the onset of the coronavirus (COVID-19) pandemic. Most of the price pressures are judged to be of a temporary nature.

The euro area economy continued to recover strongly, although momentum moderated to some extent. Output is expected to exceed its pre-pandemic level by the end of the year. The grip of the pandemic on the economy has visibly weakened, with a high share of people now vaccinated. This is supporting consumer spending, especially on entertainment, dining, travel and transportation. But higher energy prices may reduce purchasing power in the months to come.

The recovery in domestic and global demand is also supporting production and business investment. That said, shortages of materials, equipment and labour are holding back the manufacturing sector. Delivery times have lengthened considerably, and transport costs and energy prices have surged. These constraints are clouding the outlook for the coming quarters. The labour market continues to improve. Unemployment has fallen and the number of people in job retention schemes is down significantly from the peak last year. This supports the prospect of higher incomes and increased spending. But, both the number of people in the labour force and the hours worked in the economy remain below their pre-pandemic levels.

To sustain the recovery, targeted and coordinated fiscal support should continue to complement monetary policy. This support will also help the economy adjust to the structural changes that are under way. An effective implementation of the Next Generation EU programme and the “Fit for 55” package will contribute to a stronger, greener and more even recovery across euro area countries.
Source: Economic Bulletin Issue 7, 2021 (europa.eu)
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