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The Q3 Global Economic Conditions Survey (GECS) points to an easing in the pace of global economic growth towards the turn of the year.

Confidence fell back but remains at a high level. Despite high vaccination rates in many developed countries, the prevalence of the Delta variant of COVID-19 is resulting in a degree of caution that is affecting confidence. The global orders index, which is less volatile than the confidence measure, increased marginally in the Q3 survey after strong gains in the first half. This is consistent with a moderation in the pace of growth, although this was to be expected after the post-lockdown bounce.

Global uncertainty back at normal levels

The two ‘fear’ indices – measured by concern that customers and suppliers may go out of business – both declined again in the Q3 survey. Indeed, both indices are now back in line with long-run averages. This confirms that the perceived level of uncertainty about economic prospects has returned to more normal levels, at least at the global level

Orders still strongest in advanced economies

For orders – the proxy for real economic activity – there is a split in this survey between modest improvement in emerging markets and falls in advanced regions such as North America and Western Europe. This is a reversal of recent trends and the level of the orders indices in advanced regions remains above that for emerging market (EM) regions. Economic prospects in developed economies remain brighter than in emerging markets, where low vaccination rates continue to prevent a full-scale economic recovery.

Supply shortages and higher inflation taking steam out of global growth

After exceptionally strong growth in the first half of the year, there are signs of a moderation in growth as year-end approaches. Continued prevalence of COVID-19 infections, especially of the Delta variant, is in some cases undermining confidence. Moreover, in many EMs, where vaccination rates are low, containment measures are directly affecting output. This is a particular issue in South East Asia where GDP forecasts for this year have been downgraded.

But the main headwind for advanced economies is now supply shortages and the knock-on effects on consumer prices. Commodity prices have rebounded strongly this year as global demand has recovered. In addition, a shortage of semiconductors has resulted in reduced car production in many countries. Shipping costs have jumped by a factor of four compared with the pre-pandemic period, especially on the crucial routes from China to the West. These issues should prove temporary as demand and supply come back into line. But for now, the effect is to moderate global growth from a rapid to a more steady pace.