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In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.
Eurozone in recession as rising prices hit spending
The eurozone fell into recession this winter, revised figures show, as consumers were hit by rising prices.
The economy of the 20 nation-bloc contracted by 0.1% between January and March, after also shrinking in the final three months of 2022. As in other regions, the eurozone has been hit by rising food and energy prices that have weighed on households.
Spending by households in the bloc fell by 0.3% in the first three months of 2023, and by 1% in the previous quarter. Initial growth estimates had suggested that the eurozone had avoided a recession and expanded by 0.1% in the first three months of the year. But the latest updated figures from Eurostat showed it had shrunk in the first quarter.
Revised data from Germany - Europe's largest economy - contributed to the move into recession. Last month, Germany said it had fallen into recession at the start of the year after its economy contracted by 0.3% between January and March.
The bad news comes after a tough year for European economies, as surging energy prices sparked by Russia's war on Ukraine have driven up the cost of living.
The European Central Bank has responded by raising interest rates by 3.75 percentage points, in a bid to cool soaring prices.
Ireland's economy shrank by 4.6% in the first three months of 2023 compared with the previous three months. Compared with the same period last year, its economy contracted by 0.3%.
Lithuania's economy was hit hardest compared with last year - its economy shrunk by 3.7%.
Japan’s GDP revised at higher level, with a growth of 2.7% in the first quarter
Japan’s economy grew an annualised 2.7% in the first quarter of the year, expanding further than earlier estimates of 1.6% made last month, with the latest government data.
Economists surveyed by Reuters had expected to see growth of 1.9%. The Japanese yen strengthened by 0.14% to 139.98 against the U.S. dollar shortly after the release, while the Nikkei 225 rose 0.17% and the Topix was up 0.2%. Quarter-on-quarter, the economy expanded by 0.7%, beating estimates by Reuters of 0.5%.
Private non-residential investment, or capital spending, rose 1.4% — higher than initial government estimates of 0.9%. Private demand rose by 1.2% and domestic demand rose by 1%, while exports of goods and services dropped 4.2%. Imports also fell 2.3%, the recently revised government data showed.
The upside surprise for Japan’s economic growth comes as stocks remain in focus after recently notching new three-decade highs thanks to a weak yen and plans for structural reforms.
Factory activity in the economy expanded for the first time since October 2022, a Purchasing Managers’ Index published last week showed. The reading stood at 50.6, ending a six-month streak of readings below the 50-mark that separates expansion and contraction.
The resilience seen in the Japanese economy as global growth braces for a further slowing, as a result of central banks sharply raising interest rates, could be short-lived, Senior Economist Norihiro Yamaguchi of Oxford Economics said.
In the coming months, many predict the economy will maintain resilience with more room for built-up demand and more businesses are seeing greater opportunity for investment in the fiscal year.
But further headwinds are expected due to a delayed effect on external factors affecting the Japanese economy, he added.
Australia’s economy expands 2.3% in the first quarter, the slowest growth in just under two years
Australia’s first-quarter gross domestic product expanded by 2.3% year-on-year, just slightly below analyst expectations.
Economists polled by Reuters had forecast an expansion of 2.4%, compared to the 2.7% expansion in the fourth quarter of 2022. On a quarter-on-quarter basis, GDP grew by 0.2%, compared to the 0.3% expected in the Reuters poll.
This is the sixth straight rise in quarterly GDP for the country, but the slowest growth since the Covid-19 Delta lockdowns in the September quarter of 2021.
The GDP readings are key to the Reserve Bank of Australia’s decision making process for its monetary policy. Just on Tuesday, the RBA surprised markets and raised its benchmark policy rate by 25 basis points to 4.1%, an 11-year high.
Many governors have looked to reiterate that the central bank will seek to navigate a narrow path in the country’s monetary policy.
In this narrow path that many envision, Australia’s inflation will return to its 2% to 3% target range, the economy will continue to grow, and gains in the labour market are preserved.
Many think that while GDP has slowed and is forecast to slow more, productivity growth will continue to remain low as a result.
The latest observations see that GDP per hour worked fell by 0.3% quarter-on-quarter in the period, resulting in a 4.6% annual fall in productivity — the largest on record.
He also adds that most recent labour market data suggests that productivity will most likely have weakened further this quarter, which will in turn prop up unit labour cost growth and keep services inflation stubbornly high.
Many predict the current peak estimate of 4.35% for the RBA’s benchmark rate, but in light of the GDP readings and government planning, many think that there is a real risk that the RBA could raise rates even higher as a result.
