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Economic Outlook post 4-26-21

April 26, 2021

Economic Outlook: Week of April 26, 2021

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Phil Levy

Chief Economist, Flexport

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Every week, Flexport Chief Economist Phil Levy gathers the most relevant news for the global trade community.

Track major world economies, see what the latest indices reveal, and keep up with the facts and figures that could impact your business.

Here’s the economic news you need for the week of April 26, 2021.

Let’s start with a chart. This week, it’s the US Dollar Trade-Weighted Index.

After an initial strong appreciation with the onset of the pandemic, the US dollar has generally depreciated against the currencies of major trading partners.

The last reported figure of 112.8 on April 16 was down 1.9% from the beginning of 2020 and 10.9% from its recent peak of 126.5 on March 23, 2020. A depreciation makes US exports appear less expensive to foreign buyers and imports appear more expensive.

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Source: St. Louis Fed FRED and Board of Governors.

The depreciation is puzzling in some ways. While the pace of US economic recovery has been slower than that of China, the recent IMF World Economic Outlook forecast US GDP growth to be faster than all advanced economies except Spain, which was tied with a 6.4% forecast growth rate.

Further, the yields of some key US bonds have been steadily rising since last summer. These factors would normally strengthen a currency. The key countervailing force pushing for depreciation is likely the US Fed commitment to higher US inflation.

Economic Developments

PMI Numbers Gain Strength Around the World

Optimistic purchasing manager indices showed strength in multiple markets. US numbers showed a record level, Euro Area figures hit a 9-month high, and Japan showed expansion.

Jobless Claims Hit Recent Low

The US initial unemployment insurance claims figure was 547K, the lowest since March 14, 2020.

National Debts Are on the Rise

In both the US and the Euro Area, aggressive fiscal measures have pushed up debt as a share of GDP.

In the US, from 2019 to 2020, debt rose from 79.2% to 100.1% of GDP. In the Euro Area, it rose from 83.9% to 98.0%. While there is nothing magical about 100% debt to GDP, it has traditionally been a threshold of concern. For the US, the levels are near WWII peaks.

US Business Exits Are Better than Expected

US business failures are not as bad as feared, according to a Fed study. While official data arrives with a substantial lag, preliminary data suggest high levels of exit were concentrated in very small firms in specific industries and did not represent a large share of US employment.

Looking ahead, exit expectations were below historical rates in most industries.

Political Developments

European Central Bank Leaves Policy Steady

The European Central Bank met and announced it would maintain its policy rate at -0.5% (in place since Sept. 2019) and its heightened rate of bond purchases. ECB President Lagarde said Q2 economic performance looked better than Q1, but highlighted uncertainty.

US-EU Tariff Tensions Linger

While the Biden administration suspended aircraft-related tariffs last month, it has left Trump steel tariffs in place. This past week, Harley-Davidson announced it would face broader EU tariffs as a result. President Biden announced he would travel to the UK and Belgium in June, allowing talks on such matters.

For more economic insights, follow @philipilevy on Twitter or check out Flexport’s The State of Trade webinars.

*Please note that the information in our publications is compiled from a variety of sources based on the information we have to date. This information is provided to our community for informational purposes only, and we do not accept any liability or responsibility for reliance on the information contained herein. *

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