While the U.S. Worries About Inflation, Growth Elsewhere Faces Lasting Damage

As investors weigh and reweigh the chances that the U.S. economy will run too hot, they should remember that the rest of the world isn’t close to recovering from the pandemic.

Globally, the economic outlook has improved, thanks to the ramp-up in vaccinations. On Tuesday, the Organization for Economic Cooperation and Development upgraded its forecasts for growth in world gross domestic product to 5.8% for this year and 4.4% for next year, compared with December projections of 4.2% and 3.7%, respectively.

Markets fear at least a small chance that the economy could overheat, given that Washington’s fiscal transfers have left the average American household with more disposable income than before. Measures of inflation have shot up in the U.S. and are on the rise in the eurozone, too, hitting a three-year high of 2% in May, data showed Tuesday. Surveys of manufacturing purchasing managers, which recorded their highest reading ever, pointed to supply-chain shortages.

This concern about too much economic growth, however, is a first-world problem—and, even there, a lopsided one.

The U.S. is the only major country in which expectations for 2025 GDP among Wall Street forecasters are currently higher than they were in January 2020. In other developed countries that have embraced fiscal activism, such as Canada, Japan and Germany, the economy is expected to be between 0.8% and 0.5% smaller than in pre-pandemic projections. The figure is closer to 4% for the U.K. and France.