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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.
UK Government debt hits the highest level since 1962
The UK's national debt has reached its highest level since 1962, according to recent official figures. In June, government debt amounted to 99.5% of the economy's value, surpassing the peaks seen during the coronavirus pandemic for the first time.
The Office for National Statistics (ONS) also reported that government borrowing in June was higher than anticipated. Chancellor Rachel Reeves is expected to issue a statement on the state of public finances by the end of the month.
Government debt represents the cumulative amount of money owed by the government over the years, while borrowing is the gap between public sector spending and tax income during a specific period.
Last month's borrowing figure of £14.5bn was the lowest June total in five years, aided by lower interest costs due to falling inflation. However, it still exceeded economists' predictions. With ongoing demands for increased spending on public services and election commitments to avoid raising income tax, corporation tax, or VAT rates, many economists foresee a rise in borrowing.
Additionally, separate ONS figures indicated a larger-than-expected drop in retail sales last month. Retail sales volumes fell by 1.2% in June, following robust growth in May.
Non-food retailers, including clothing stores and department stores, experienced the steepest decline, with sales dropping by 2.1%. The ONS noted that retailers attributed the decline to election uncertainty, poor weather, and low footfall.
IMF raises India’s economic outlook, but states that global growth will remain lacklustre
The International Monetary Fund (IMF) has revised its economic forecast for India in 2024, projecting a growth rate of 7%, up from the 6.8% forecasted in April.
This adjustment is largely due to increased private consumption, particularly in rural areas. However, the IMF warns that growth will decline to 6.5% in 2025, following an 8.2% growth rate for the fiscal year from April 2023 to March 2024.
India, which the IMF previously called “the world’s fastest-growing major economy,” is drawing significant investor interest from tech giants like Apple and Google as it aims to become a manufacturing powerhouse. According to many economists, India is poised to become the world's second-largest economy by 2075.
The IMF has also upgraded its growth projections for China, with the economy expected to grow by 5% this year, unchanged from its May prediction but up from the April forecast of 4.6%. However, growth is forecasted to slow to 4.5% in 2025 and further decline to 3.3% by 2029.
This optimistic outlook for 2024 is partially attributed to stronger consumer activity and exports in the first quarter of the year. Yet, official Chinese data showed a 4.7% year-on-year growth in the second quarter, falling short of the 5.1% expected by economists polled by Reuters.
Despite this, the IMF remains optimistic about a rebound in consumption in the coming years, although falling birth rates may impede productivity and slow economic growth. Growth from India and China is anticipated to account for almost half of the global growth this year.
Globally, the IMF expects growth to remain at 3.2% in 2024, unchanged from April’s forecast, with a slight increase to 3.3% in 2025.
In the United States, the economy is projected to grow by 2.6% this year, a slight decrease from the April forecast of 2.7%. The inflation rate in the US has been easing, dropping to 3% in June from 3.3% in May.
German government has proposes new economic growth initiative
Last week, the German government officially adopted the draft budget for 2025, along with a package of measures known as the Wachstumsinitiative (Growth Initiative).
This initiative comprises 49 measures, including tax incentives for private investment, attracting skilled foreign workers, reducing bureaucracy, creating backup capacity for renewable energy, and easing high electricity costs for energy-intensive companies.
Minister of Economic Affairs and Climate Protection Robert Habeck anticipates that this economic package will boost economic growth by an additional 0.6%, which would also result in higher expected tax revenues for the federal budget next year. However, the initiative has sparked controversy within the government coalition, particularly regarding the planned tax breaks for skilled foreign workers.
Germany plans to push for several measures at the EU level to support its strong export sector. For instance, the country will lobby the European Commission to reduce the extensive reporting requirements under the Corporate Sustainability Reporting Directive (CSRD).
The specific legislative measures will be developed by the responsible ministries. Meanwhile, the German industrial association BDI predicts only a "slight" increase in economic growth from the initiative. Many suggest that even if the measures pass the German parliament and are implemented without changes, the overall stimulus will be moderate. However, some structural reforms might lead to marginal improvements.
Additionally, in late May, the German government approved two bills to accelerate the integration of hydrogen and carbon capture technologies into the country’s energy and industrial systems. These technologies are considered crucial for Germany's goal of becoming carbon neutral by 2045 while maintaining its heavy industry.
