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 economy shrinks for second consecutive month
The UK economy contracted for the second consecutive month in October, as concerns surrounding the Budget continued to dampen confidence.
According to official data, the economy shrank by 0.1%, defying earlier predictions of a return to growth following September’s decline.
The Office for National Statistics (ONS) reported that activity stagnated or decreased across several sectors, with pubs, restaurants, and retail experiencing notably sluggish months.
However, industries such as real estate, legal services, and accountancy saw a surge in activity as work was expedited ahead of the Budget announcement by Reeves, the ONS added.
Meanwhile, a December survey on consumer confidence showed a slight improvement in people’s outlook on their personal finances for the coming year. However, research by market insights firm GfK indicated that "views on the economy remain unchanged from November," suggesting ongoing uncertainty about the future.
The ONS figures reveal that the economy has only grown once in the past five months. Capital Economics noted that GDP is now 0.1% below the level seen before Labour's election victory in July.
Despite two interest rate cuts by the Bank of England this year, rates remain relatively high at 4.75%, a stark contrast to recent years.
The Bank is set to hold its final interest rate meeting of 2024 next week but is not expected to lower rates again until next year.
Economists cautioned against drawing definitive conclusions from October’s preliminary growth estimate, which may be revised. Over the three months leading to October, the economy saw modest growth of 0.1%.
In October, manufacturing experienced the steepest decline, falling 0.6%, followed by a 0.4% drop in construction. The services sector, which constitutes the majority of the UK economy, recorded no growth at all.
US job market bounces back following impact of hurricanes and strikes
Hiring in the US surged in November, continuing a prolonged streak of job gains that have bolstered the world’s largest economy.
According to the Labor Department, employers added 227,000 jobs, with the healthcare sector, restaurants, and bars leading the growth.
This marks a sharp rebound from October, when job growth slowed significantly due to major storms and labour strikes. The report comes as analysts debate the Federal Reserve's next steps on interest rates, with expectations of further cuts in the coming months.
The Fed began lowering rates in September, citing the need to support economic growth and prevent potential softening in the labour market. However, job creation stalled in October, impacted by strikes at Boeing and other companies, as well as hurricane-related disruptions that sidelined millions of workers.
The November recovery suggests that October’s slowdown was likely temporary. The Labor Department also revised its estimates for September and October upward, showing stronger job gains than initially reported.
Despite the positive hiring numbers, the unemployment rate inched up from 4.1% to 4.2%, the highest since August. Many analysts believe this increase supports the case for an additional rate cut, which could be announced during the Federal Reserve’s upcoming meeting.
However, Federal Reserve Chair Jerome Powell recently downplayed the urgency of aggressive rate reductions, signalling a measured approach.
Over the past year, average hourly wages have risen by 4%, a trend that some analysts warn could fuel a resurgence in inflation. Rising wages may increase purchasing power but also risk pushing up prices, adding another layer of complexity to the Fed's balancing act between supporting economic growth and keeping inflation in check.
Uncertainty looms as Bank of Japan looks to make rate change decision
Investors are grappling with mixed signals and a web of conflicting indicators, leaving them with little clarity ahead of the Bank of Japan’s (BOJ) next policy meeting, which concludes on Thursday.
Market bets are nearly evenly split on whether the central bank will maintain its benchmark rate at 0.25% or opt for an increase. A recent Bloomberg survey of economists found that 52% expect the BOJ to wait until January to take action, while 44% predict a hike this week.
Reports in the Japanese press suggest that BOJ policy board members may favour holding off on a rate change for another month, aiming to assess how markets respond to the early days of U.S. President Donald Trump’s administration. However, broader analyses remain inconclusive, reflecting the uncertainty.
The BOJ has repeatedly emphasized that rate hikes will only occur if inflation and economic growth align with its forecasts. Yet, political pressures complicate this stance, with calls to act when the yen weakens or to pause when pro-growth lawmakers dominate policy discussions.
Both the government and the BOJ have underlined that an excessively weak yen—or one that depreciates too rapidly—is undesirable. The yen strengthened to around ¥140 per dollar in September, only to slide back into the ¥150 range. Currently trading at approximately ¥153.6, the currency’s level is again raising concerns about potential weakness.
The broader landscape of monetary policy adds to the complexity. The U.S. Federal Reserve is widely expected to cut rates again this week, despite robust U.S. economic performance and inflation hovering near 3%. The CME FedWatch tool places the probability of a rate cut at the Fed’s Wednesday meeting at 93%.
Some analysts argue that delaying a decision until January may not provide much greater clarity. The uncertainty surrounding the Trump administration’s policies could introduce additional complications, leading some to suggest that the BOJ has little reason to wait.
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UK economic growth slows with budget fears at the forefront of blame
The UK economy showed minimal growth from July to September, with concerns surrounding the Budget cited as a primary factor for this weak performance.
The economy expanded by only 0.1% during the quarter and contracted in September.
Economic growth has been a key focus since Labour came to power, but Chancellor Rachel Reeves expressed dissatisfaction with these initial results covering the new government’s first three months.
Many businesses, however, have raised concerns about the Budget’s tax increases, warning these could lead to higher prices and reduced hiring. Major retailers such as Marks & Spencer, Sainsbury’s, and JD Sports have indicated that price hikes may be necessary in response to these changes.
The 0.1% growth rate was below expectations and significantly lower than the 0.5% growth seen from April to June. Economists believe that uncertainty about the contents of October’s Budget influenced the behavior of both businesses and consumers during this period.
According to the Office for National Statistics (ONS), growth was "subdued across most industries" in the latest quarter.
A notable factor was the slowdown in the services sector, which represents a significant portion of the UK economy, including businesses like shops, bars, and restaurants. This sector grew by only 0.1% over the quarter and did not grow at all in September.
Additionally, UK growth could face further obstacles if US President-elect Donald Trump enacts his proposed 20% tariff on all imports into the US.
Analysis from the University of Sussex's Centre for Inclusive Trade Policy suggests this measure could reduce UK exports by £22 billion.
US Inflation progress stalls in October
Inflation in the U.S. increased last month, suggesting a possible slowdown in efforts to stabilise prices.
Consumer prices rose by 2.6% in the year leading up to October, largely due to higher costs for housing and food, according to the Labor Department. This marked a slight rise from the 2.4% recorded the previous month.
These latest numbers have fueled speculation that the U.S. central bank may not reduce interest rates as much as previously anticipated in the near future.
The Federal Reserve aims to bring inflation, or the rate of price increases, closer to its target of around 2%. The bank began lowering rates in September, acknowledging notable progress since June 2022, when inflation had soared above 9%.
However, analysts caution that new risks may lie ahead as President-elect Donald Trump has proposed a blend of tax cuts, tariffs, and immigration restrictions that some believe could maintain upward pressure on costs for businesses and consumers.
Prices increased by 0.2% from September to October, mirroring the pace of the previous three months. The steady rise in prices over recent years has been a significant public concern, contributing to Trump’s recent election victory.
Over the past year, housing costs, including rents, rose by 4.9%, the Labor Department reported. Given the substantial weight of housing in the U.S. price index, these costs accounted for the largest portion of annual inflation.
Other significant contributors included car insurance, which climbed more than 14% year-over-year, as well as medical care and education. Gasoline prices, however, stood out as a major exception, having fallen by 12% over the past year amidst the general rise in living costs.
Eurozone growth lags behind the US in the latest observations
The Eurozone economy is projected to continue lagging behind the U.S., according to the European Commission, which lowered its 2025 growth forecast for the region to 1.3%.
This revised figure is slightly below its previous May forecast of 1.4%, underscoring a pessimistic outlook as the region struggles to keep pace with U.S. economic growth.
The European Commission’s forecast remains more optimistic than private sector predictions. Consensus Economics, which aggregates forecasts, expects the Eurozone to grow by just 1.1% next year, while projecting a 2% expansion for the U.S. in the same period.
Carsten Brzeski, chief Eurozone economist at ING Bank, believes the commission’s outlook is still overly optimistic, pointing out that the projections don’t fully account for structural challenges within the Eurozone economy.
The U.S. economy, in contrast, is anticipated to grow more robustly, with the European Commission forecasting a 2.1% increase in 2025 and 2.2% in 2026.
Germany, the Eurozone’s largest economy, has stagnated over the last two years, with its manufacturing sector struggling to remain competitive. The commission now expects Germany’s economy to contract by 0.1% this year, a downgrade from its previous forecast of 0.1% growth.
The re-election of Donald Trump is likely to add further pressure on Eurozone exporters, as he has proposed tariffs of 10-20% on all exports and has been critical of Europe’s trade surplus with the U.S.
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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.
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China looks to tackle economic challenges as growth slows in second quarter
China's economy faltered in the second quarter, according to official data, coinciding with a key meeting of the country's top leaders to address its sluggish growth.
The economy grew by 4.7% in the three months to June, missing expectations after a stronger start in the first quarter of 2024. The government's annual growth target is approximately 5%.
The world's second-largest economy is grappling with a prolonged property crisis, steep local government debt, weak consumption, and high unemployment.
Observers are uncertain about the potential for bold ideas or debate under President Xi's centralised leadership, with some viewing the meeting as a mere formality to approve pre-made decisions. Economists are also sceptical that the meeting will yield a quick fix, though analysts are watching for announcements that might signal the Party's economic priorities.
Separate data on Monday revealed that new home prices in June fell at the fastest rate in nine years, further highlighting the property sector crisis that has led to the downfall of giants like Evergrande. There is concern that this crisis could spill over into other parts of the economy.
Another issue is deflation, a symptom of weak demand. Producer prices continued to decline last month, while consumer prices rose by only 0.2%, the slowest pace in three months. Retail sales in June grew by just 2%, falling short of expectations and indicating that consumers remain cautious about spending and uncertain about the future.
Beijing is betting on high-tech industries such as renewable energy, artificial intelligence, and chip-making, along with exports, to revive the economy. Last month, China reported a record trade surplus of $99 billion (£76.4 billion) as exports soared while imports struggled.
However, this strategy faces significant challenges. Major trading partners, including the European Union and the United States, have imposed tariffs and other barriers on Chinese goods, ranging from electric vehicles to advanced chips.
UK economy showcases unexpected growth in May
The UK economy grew faster than anticipated in May, driven by a robust performance from retailers and the construction sector. The economy expanded by 0.4%, rebounding from stagnation in April when wet weather deterred shoppers and delayed building projects.
In May, construction experienced its fastest growth rate in nearly a year, with house building and infrastructure projects boosting the industry, according to the Office for National Statistics (ONS).
Analysts indicated that the new figures, coupled with recent comments from Bank of England policymakers, suggest that the decision on whether to cut interest rates next month is finely balanced.
May's growth figure was double the expected rate. Liz McKeown of the ONS noted that many retailers and wholesalers "had a good month, with both bouncing back from a weak April."
The services sector, which dominates the UK economy and includes businesses such as shops, bars, and restaurants, grew by 0.3% in May, while the construction sector surged by 1.9%.
Economists caution against placing too much emphasis on one month's economic activity as it can be influenced by factors like the weather.
In the three months to May 2024, the economy grew by 0.9% compared to the previous three months, marking the fastest pace in over two years, according to the ONS.
Analysts suggest that the surprisingly strong growth figures might reduce the likelihood of the Bank of England cutting interest rates from the 16-year high of 5.25% at its meeting on 1 August.
The Bank raised interest rates to curb inflation, the rate at which prices increase. However, the latest inflation figures showed the rate had fallen back to the Bank's target of 2%.
Despite this, two members of the Bank's Monetary Policy Committee (MPC), which determines interest rates, expressed concerns this week about persistent inflationary pressures.
Strong economic growth can drive up demand for goods and labour, potentially increasing prices and wages. The latest figures for inflation and wage increases are expected to be published next week.
Argentinian economy looks to plateau after slow recovery period
Argentina's beleaguered economy is expected to stabilise and start a fluctuating recovery in the latter half of the year, according to forecasts by analysts and economists.
Economic activity in Argentina has significantly declined since the end of last year, a result of the crisis inherited by libertarian President Javier Milei. Since taking office in December, Milei has implemented a stringent austerity program alongside economic deregulation.
While Milei's policies have balanced public accounts and appear to be gradually reducing an inflation rate of around 280%—one of the highest in the world—consumption has plummeted, and economic contraction has driven half the population into poverty.
Reports show that the economy contracted by 6.7% in the first four months of the year, with observations indicating declines in real wages and employment levels, which will take time to recover to previous levels. Analysts note that the sectors crucial for economic revitalisation have been among the hardest hit.
The construction sector, in particular, has suffered due to reduced public spending and the government halting incomplete projects.
Construya, an association of 12 major construction firms, reported that its index of private sector sales volumes, while recovering 10% month-on-month in June in seasonally adjusted terms, had plunged 32% compared to the previous year.
Analysts now predict that economic activity will begin to slowly edge up from the second half of 2024.
US jobs boom raises doubts about rate cuts
Last month, employers in the United States saw a significant surge in job creation, adding over 300,000 jobs, marking the largest increase in nearly a year, amidst the ongoing economic prosperity in the world's largest economy.
According to the Labor Department, the unemployment rate dropped to 3.8%, with sectors like healthcare, construction, and government witnessing growth in employment opportunities.
This robust job growth surpassed economists' expectations, who had anticipated around 200,000 job additions. Analysts noted that these strong figures might postpone potential cuts to US interest rates. Currently, the US central bank's key interest rate stands at its highest level in over two decades, ranging between 5.25% and 5.5%.
Initially, analysts had anticipated the Federal Reserve to initiate rate cuts this year to mitigate a potential economic slowdown caused by high borrowing costs. However, the unexpectedly strong performance of the economy has raised uncertainties regarding the timing of these rate cuts.
In 2022, the Federal Reserve had hiked interest rates significantly to temper the economy and alleviate mounting inflationary pressures. Since then, inflation in the US has moderated, dropping to 3.2% in February, without the anticipated surge in unemployment following the rise in borrowing costs.
Government spending in sectors such as high-tech manufacturing and infrastructure, coupled with an influx of over three million immigrants last year, has bolstered the labour market. This influx may be contributing to wage stability, preventing the job boom from reigniting inflationary pressures.
In March, average hourly wages increased by 4.1% compared to the previous year, aligning closely with expectations and remaining near a three-year low. However, some economists caution that sustained robust job growth could hinder efforts to return inflation to the Federal Reserve's 2% target.
The higher interest rates in the US have exerted pressure on economies worldwide, attracting investors to American markets and diverting capital away from other nations.
UK house prices fall for the first time in over six months
According to the latest report from Halifax, house prices experienced a decline in March, marking the first decrease in over six months across the UK.
The lender reported a 1% drop in prices last month, attributing it to the impact of higher mortgage rates on the affordability of homes for potential buyers. The average house price dipped by approximately £2,900 to £288,430.
Nevertheless, Halifax noted that despite the decline, house prices remained higher than they were a year ago. In March, prices were 0.3% higher compared to the same period last year, although this growth rate had slowed from the 1.6% annual increase observed in February.
During the Covid pandemic, UK interest rates reached historic lows. However, the Bank of England commenced rate hikes towards the end of 2021 in an effort to manage inflation. This upward trend in interest rates consequently affected mortgage rates, making borrowing money for house purchases more costly.
Mortgage rates reached their peak last summer but began to decline as anticipation mounted regarding potential rate cuts by the Bank of England this year. This led to increased activity in the housing market, with February witnessing the highest number of mortgage approvals since September 2022, according to recent Bank of England data.
However, uncertainties surrounding the pace of rate reductions by the Bank of England have halted decreases in mortgage rates, prompting some lenders to raise them once again.
It's important to note that Halifax's house price data is based solely on its own mortgage lending, excluding cash buyers and buy-to-let transactions. Cash buyers constitute approximately a third of housing sales.
Japan raises interest rates for first time in 17 years
Japan's central bank has made a historic move by increasing borrowing costs for the first time in 17 years.
The Bank of Japan (BOJ) raised its key interest rate from -0.1% to a range of 0%-0.1% in response to a surge in wages following a rise in consumer prices.
In 2016, the bank had cut the rate below zero in a bid to stimulate the country's sluggish economy. With this hike, there are now no countries left with negative interest rates.
Negative rates essentially meant that individuals had to pay to deposit money in a bank, serving as an incentive for spending rather than saving.
The BOJ has also abandoned its yield curve control (YCC) policy, which involved purchasing Japanese government bonds to manage interest rates. Although in place since 2016, the YCC policy faced criticism for distorting markets by keeping long-term interest rates artificially low.
Expectations for the BOJ to raise rates had been mounting since Governor Kazuo Ueda assumed office in April of the previous year. Despite a slowdown in the rate of price increases, Japan's core consumer inflation remained at the bank's 2% target in January, prompting the decision to finally hike rates.
Major corporations in the country had started increasing wages for their employees to combat the rising cost of living, with the latest official figures revealing the largest wage hike in over three decades earlier this month.
Previously stagnant wages in Japan, which had remained unchanged since the late 1990s despite slow or negative consumer price growth, have seen a notable uptick. In February, the country's main stock index, the Nikkei 225, reached an all-time closing high, surpassing the previous record set 34 years ago.
Additionally, Japan managed to avoid a technical recession this month after its official economic growth figures were revised, showing a 0.4% increase in gross domestic product (GDP) in the last quarter of 2023 compared to the previous year.
During the pandemic, central banks globally slashed interest rates to mitigate the adverse effects of border closures and lockdowns. Some countries, including Switzerland, Denmark, and the European Central Bank, even introduced negative interest rates.
However, central banks like the US Federal Reserve and the Bank of England have since been aggressively raising interest rates to combat surging prices.
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UK recession may already be over, states Bank of England chairman
Based on the statements from the Bank of England's governor, Andrew Bailey, it appears that there are indications suggesting that the UK recession may already be ending.
With new signs of an upturn in the economy. Bailey highlighted that by historical standards, this recession is notably weak.
Official figures from the Office for National Statistics (ONS) showed that the UK economy contracted by 0.3% between October and December of the previous year, following a previous contraction between July and September, indicating a recession as defined by two successive quarters of economic decline.
However, despite these indicators of potential economic recovery, the Bank of England signalled that it is not considering an immediate interest rate cut. Instead, it is waiting for further evidence, particularly in areas such as wage growth and job vacancies, to confirm whether inflation has decisively turned.
Bailey also mentioned the possibility of inflation being influenced by changes in energy prices, with expectations of a decrease in the price cap on UK electricity and gas bills from April.
While this might temporarily bring overall inflation down to the Bank of England's 2% target, Bailey cautioned that inflation could rise again over the year.
Overall, while there are optimistic signs of an economic upturn and the recession potentially coming to an end, the Bank of England is adopting a cautious approach, awaiting more evidence before making significant policy decisions.
Israel's economy shrinks more than expected due to ongoing Gaza conflict
Official data reveals a significant contraction in Israel's economy following the conflict in Gaza, surpassing earlier expectations.
Gross Domestic Product (GDP), a crucial indicator of economic well-being, plummeted by 19% annually in the fourth quarter of 2023, marking a 5% decline from October to December alone. The Central Bureau of Statistics attributed this decline directly to the outbreak of conflict on October 7.
Analysts expressed surprise at the severity of the economic downturn, as forecasts had anticipated a milder annualised decline of 10.5%. The Central Bureau of Statistics outlined how the war severely impacted various economic sectors, leading to reduced spending, travel, and investment at the year's end.
Private spending saw a staggering 26.3% decrease, while exports and investment in fixed assets, particularly in residential buildings, experienced notable declines of 18.3% and 67.8%, respectively.
The construction industry suffered from labour shortages due to military mobilisation and a decrease in Palestinian workers. Conversely, government spending surged by 88.1%, primarily attributed to war-related expenses and compensation for affected businesses and households.
Despite the sharp GDP contraction in the final quarter, Israel's economy managed to grow by 2% for the entire year. However, prior to the October 7 attacks, it had been projected to expand by 3.5%.
Furthermore, the conflict's repercussions extended beyond Israel, affecting regional trade dynamics. Houthi rebels, supported by Iran, targeted cargo ships traversing the Red Sea en route to the Suez Canal, disrupting global trade routes.
Egyptian President Abdel Fattah al-Sisi disclosed that these attacks had slashed Suez Canal revenue by an estimated 40% to 50% for the year. The Red Sea, a vital artery for maritime trade, typically handles nearly 15% of global seaborne commerce.
Africa’s largest economy is battling a currency crisis and soaring inflation
Nigeria finds itself entrenched in one of its most severe economic crises in recent memory, with annual inflation nearing 30% and its currency experiencing a rapid decline, sparking widespread outrage and protests nationwide.
On Monday, the Nigerian naira hit a historic low against the U.S. dollar on both the official and parallel foreign exchange markets, plummeting to nearly 1,600 against the greenback on the official market, a stark drop from around 900 at the beginning of the year.
In response to the escalating crisis, President Bola Tinubu announced plans on Tuesday for the federal government to mobilise at least $10 billion to bolster foreign exchange liquidity and stabilise the naira, as reported by numerous local media outlets.
Since assuming office in May 2023 amidst a struggling economy, President Tinubu has pledged a series of reforms aimed at restoring stability. However, the unified approach to Nigeria's exchange rates, along with the adoption of market-driven mechanisms to determine the exchange rate, has led to a significant depreciation of the currency. Additionally, adjustments in how the currency's closing rate is calculated by the market regulator have further contributed to de facto devaluation.
Years of stringent foreign exchange controls have exacerbated pent-up demand for U.S. dollars, coinciding with declines in overseas investment and crude oil exports, key pillars of Nigeria's economy. Despite being Africa's largest economy with a population exceeding 210 million, Nigeria heavily relies on imports to sustain its rapidly growing population.
Meanwhile, inflation continues its upward trajectory, with the headline consumer price index soaring to 29.9% year-on-year in January, marking its highest level since 1996. The surge is primarily fueled by a persistent increase in food prices, which spiked by 35.4% last month compared to the previous year.
The escalating cost of living and economic challenges have triggered protests nationwide over the weekend. The sharp depreciation of the currency compounds the adverse effects of government reforms, such as the removal of gas subsidies, resulting in a threefold increase in gas prices.
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UK economy falls into recession after public spending cuts take effect towards closing stages of 2023
The UK's economy fell into recession in late 2023, with two consecutive quarters of contraction, reflecting a concerning trend.
The larger-than-expected 0.3% contraction between October and December, following a previous contraction between July and September, underscores the challenges faced by the economy.
Rishi Sunak's pledge to grow the economy has come under scrutiny in light of these figures, as the economy's performance has fallen short of expectations. Despite a modest annual growth of 0.1% for 2023, it remains the weakest figure since the aftermath of the 2008 global financial crisis.
The situation in the UK is not isolated, as other major economies, such as the European Union and Japan, have also experienced economic pressures. Factors contributing to the UK's economic downturn include reduced consumer spending, strike action in the health sector, and lower school attendance rates.
The Office for National Statistics (ONS) highlights a slowdown across various sectors, including construction and manufacturing, indicating a broad-based economic weakness. Moreover, forecasts for public finances have worsened due to increased interest costs on government borrowing.
The Bank of England's decision to maintain interest rates at 5.25% since August suggests a cautious approach to managing inflationary pressures amidst the economic slowdown.
Overall, these developments underscore the need for careful economic management and potential policy adjustments to stimulate growth and address the challenges facing the UK economy.
US inflation slows by less than expected
Price increases in the US moderated last month but not as much as expected, as higher housing and food costs offset a decline in petrol prices.
The latest report from the Labor Department indicates that price increases in the US moderated slightly but not as much as expected in the previous month.
Despite a decline in petrol prices, higher housing and food costs offset these declines. Annual inflation, measured at 3.1%, was lower than the previous month's 3.4% but still higher than the anticipated 2.9%.
This data suggests that authorities are still grappling with inflationary pressures, as inflation remains elevated. The news of inflation not falling as much as expected led to a downturn in US financial markets, dispelling hopes of early interest rate cuts by the US central bank to address the issue.
Although inflation spiked significantly in June 2022 due to factors like surging oil prices amid the Ukraine conflict, many of the initial supply chain disruptions have improved, and demand has moderated since then, partly in response to the Federal Reserve's tightening of borrowing costs. However, price increases, particularly for services, continue to persist.
These ongoing price rises have had a tangible impact on incomes and have contributed to dissatisfaction among voters, especially in the lead-up to the presidential election in November.
While some areas like grocery prices saw more modest increases, other sectors such as restaurant prices, car insurance, and personal care experienced significant jumps in costs.
The core inflation rate, which excludes volatile food and energy prices, remained unchanged at 3.9%, indicating that underlying inflationary pressures persist across the economy.
Japan’s economy unexpectedly slips into recession, as weak domestic demand takes hold
The latest provisional government data reveals that Japan's economy slipped into a technical recession, experiencing unexpected contraction once again in the October-December period.
High inflation has constrained domestic demand and private consumption in what is now the world's fourth-largest economy.
This development presents challenges for both Bank of Japan Governor Kazuo Ueda, who is considering interest rate normalisation, and Japanese Prime Minister Fumio Kishida, who may need to reassess fiscal policy support.
The fourth-quarter contraction of 0.4% compared to a year ago, following a revised 3.3% slump in the July-September period, was well below economists' expectations.
Additionally, the GDP deflator stood at 3.8% on an annualised basis for the fourth quarter. The economy also shrank 0.1% in the fourth quarter compared to the previous quarter, further below expectations for expansion.
Private consumption, a significant driver of economic activity, declined 0.2% in the fourth quarter compared to the previous quarter, contrary to expectations for expansion.
Although inflation has been gradually decelerating, "core core inflation," which excludes food and energy prices, has surpassed the BOJ's 2% target for 15 consecutive months. Despite this, the BOJ has maintained its negative-rate regime, hoping that sustained wage growth would stimulate consumer spending.
However, the weaker-than-expected GDP data calls into question the BOJ's strategy of relying on domestic demand-driven inflation. Many market observers anticipate the BOJ may abandon its negative rates regime at its April policy meeting, particularly if the annual spring wage negotiations indicate significant wage increases.
Yet, the persistent high inflation and its impact on domestic consumption may strengthen the case for maintaining looser monetary policy for an extended period.
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.
House prices rise highest for a year in January
House price rises in January were the highest for a year as mortgage rates continued to ease.
A slowdown in inflation and a recently buoyant jobs market also helped push property prices up. The UK's biggest mortgage lender, Halifax, said a typical home now costs £291,029 on average, a 2.5% jump from January the previous year.
The figures come as major housebuilder Barratt announced it would buy rival Redrow in a deal worth £2.5bn. Housebuilders have struggled over the past couple of years as higher interest rates dented demand and construction costs rose in conjunction with this.
But expectations of rates being cut this year, with inflation - the pace of price rises - slowing down, has led to increased confidence in the housing market, Halifax said in a recent report.
However, it warned that while house prices had risen, interest rates still remained relatively high compared with the historic lows seen in recent years, making it more expensive for prospective buyers to borrow. The lender also stated that first-time buyers faced average deposits of £53,414.
Price data is based on its own mortgage lending, which does not include buyers who purchase homes with cash, or buy-to-let deals. Cash buyers account for about a third of housing sales.
First-time buyers and homeowners looking to remortgage properties have faced higher borrowing costs in recent months. The Bank of England has recently held interest rates at a 16-year high of 5.25% since August 2023, in a bid to try to slow down the rapid pace of general price rises across the country.
A typical two-year fixed mortgage rate would charge 5.57% interest on Tuesday, while a five year deal would charge 5.22%, according to data from available data. This is down from a peak of 6.86% for a two-year deal in July last year, it also stated.
Germany’s economic outlook remains shaky amidst recent data
Germany’s economy has been struggling and the latest data has provided little hope for improvement as the nation looks to continue tackling economic woes.
Multiple key 2023 data points, namely factory orders, exports and industrial production, were out last week and indicated a weak end to the year that saw questions about Germany being the “sick man of Europe” resurface to the front pages.
The data confirm that German industry is still in recession with multiple economists predicting continued economic downturn.
Industrial production declined by 1.6% in December on a monthly basis, and was down 1.5% in 2023 overall compared to the previous year. Exports – which are a major cornerstone of the German economy – fell by 4.6% in December and 1.4%, or 1.562 trillion euros ($1.68 trillion), across the year.
Meanwhile, factory orders data seemed promising at first glance as it reflected an 8.9% increase in December compared to November.
But this growth is not a source of comfort for many economists, with some explaining that it is thanks to several large-scale orders, which tend to be highly volatile. Orders excluding large-scale orders actually fell to a post-pandemic low.
For 2023 overall in comparison to the previous year, factory orders were down 5.9%.
This figure sits relatively in line with how Germany’s economy fared in 2023, when it contracted by 0.3% year-on-year, according to data released by the federal statistics office last month.
The data also showed a 0.3% decline of the gross domestic product in the fourth quarter, but Germany still managed to avoid a technical recession, which is characterised by two consecutive quarters of negative growth.
This is due to the statistics office finding that the third quarter of 2023 saw stagnation rather than contraction. But should the economy contract as expected in the first three months of 2024, Germany would indeed fall into a recession.
Eurozone inflation continues to cool
The most recent inflation figures for the 20-nation Eurozone continue to show positive trends, yet there has been a recent uptick in bond yields due to investor expectations that the European Central Bank (ECB) may postpone rate cuts.
Despite a slowdown in both headline and core inflation, there has been no deceleration in the inflation of labour-intensive services, leading to concerns among investors that progress in reducing inflation may be hindered by a tight labour market – a concern shared by the ECB.
According to reports from the European Union (EU), consumer prices rose by 2.8% compared to a year earlier in January, but fell by 0.4% from the previous month. Core prices, which exclude volatile food and energy prices, saw a 3.3% increase, the lowest since March 2022, and dropped by 0.9% from the previous month.
Notably, prices of non-energy industrial goods rose by only 2% compared to a year earlier and saw a significant decrease of 2.4% from the previous month.
While these figures may seem promising, investors are concerned by the fact that service prices have remained stable, showing a year-on-year increase of 4%, consistent with the figures from December and November.
This lack of deceleration in service prices is worrisome because services typically rely heavily on labour, and wages are rising sharply. As a result, it is expected that the ECB will hesitate to cut interest rates until wage pressures ease.
Recent data has also indicated that despite a sharp rise in shipping costs, the cost of shipping a container from China to Europe is now only about one third of what it was in early 2022. This development has had a noticeable impact on economic performance, suggesting that the inflationary effects of the current crisis are unlikely to resemble those of the pandemic period.
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Crisis-hit Chinese property giant, Evergrande, ordered to liquidate
A court in Hong Kong has ordered the liquidation of debt-laden Chinese property giant Evergrande in a recent ruling.
Judge, Linda Chan, declared the order after the troubled developer repeatedly failed to come up with a plan to restructure its debts.
The firm has been the epitome of China's real estate crisis after accumulating more than $300bn (£236bn) of debt.
But it is unclear how far the Hong Kong ruling will hold sway in mainland China. The property giant, which has been in hot water with its creditors for the last two years, filed a request for another three months' leeway at 4pm on Friday.
The slow burn crisis at Evergrande has sent shockwaves through the investment community, with its potential impact likened to the collapse of Lehman Brothers at the start of the financial crisis.
China's property sector remains fragile as investors wait to see what approach Beijing will take to the court's move.
The decision is likely to send further shockwaves through China's financial markets at a time when authorities are trying to curb a stock market sell-off in an attempt to regain confidence in the economy.
Evergrande shares fell by more than 20% in Hong Kong after the announcement, before trading was suspended the same day.
The liquidators will look carefully at Evergrande's overall financial position and identify potential restructuring strategies. That could include seizing and selling off assets, so that the proceeds can be used to repay outstanding debts.
However, Beijing may be reluctant to see work halt on property developments in China, where many ordinary would-be homeowners are waiting for apartments they have already paid for as a result of the crisis.
Evergrande has come to firmly represent the ongoing trouble of China's property boom and bust, borrowing heavily to finance the building of forests of tower blocks aimed at housing the millions of migrants moving from rural areas to cities. It ran into trouble, and defaulted on its debts in December 2021.
Bank of England inching closer to interest rate cuts
The Bank of England has held interest rates at 5.25% but indicated it is edging towards cutting borrowing costs.
In its latest meeting, the Bank said it had discussed cutting rates, with inflation set to fall quickly this year. But the Bank's governor, however, said it would wait for firm evidence that inflation was under control before looking to act upon this information.
For the first time since the 2020 Covid pandemic, a key Bank of England policymaker voted for an immediate cut. However, whilst some voted to cut rates to 5%, two members of the Monetary Policy Committee (MPC) backed an increase to 5.5%. The remaining six members of the committee voted to keep rates unchanged.
It is the first time there has been a three-way split on whether rates should rise, fall or be held since the 2008 financial crisis. The Bank of England has been raising rates steadily over the past couple of years to try to reduce inflation, with the last rate rise in August 2023.
Higher interest rates cool inflation by making borrowing more expensive, discouraging people and businesses from taking on debt to fund spending.
Inflation has fallen sharply from the 40-year peak observed in October 2022 and currently stands at 4%. The Bank is therefore battling to keep price growth at, or close to, its ongoing target of 2%.
It said in its latest inflation statement that the figure would fall back to that target between April and June this year - quicker than it had previously expected.
The Bank is expecting a slight rebound in inflation over the summer, and at the Bank's news conference, many stated that this would not be an ideal territory to explore rate cuts.
This further suggests that any rate cut may not come as quickly as many expect. There is concern among some economists that the fall in the inflation rate towards the Bank's target is false due to the cut in the energy price cap, and that inflation will rebound somewhat over the summer as global energy prices have picked up as a result.
In addition, the ongoing growth in pay remains strong, with the Bank's latest survey multiple companies pointing to a 5.4% rise in wage settlements this year.
Alongside this, the Bank's new forecasts indicate that keeping rates at their current level could therefore push a barely growing economy into an outright recession.
Federal Reserve holds interest rates at a 23-year high
Officials at the US central bank have left interest rates at a 23-year high, and said rate cuts are imminent as the economic situation continues to develop.
The decision from the Federal Reserve again kept the target range for its benchmark rate, which helps set borrowing costs for mortgages, credit cards and other loans, between 5.25%-5.5%.
That is sharply higher than two years ago, when the Fed started raising rates to fight inflation. Investors expect rate cuts this year. But exactly when the bank will start to reverse course is being closely watched, especially as a multitude of central banks in other countries, including the Bank of England which meets on Thursday, face similar decisions as a result.
At a press conference after the meeting, the Federal Reserve Chairman recently stated policymakers did not expect to cut rates in March, as some investors had been betting. Therefore, it has not raised interest rates since July, with this month's meeting marking the fourth without change.
Supporters of rate cuts argue that the soaring price increases that pushed the central bank to start raising rates in 2022 have slowed.
The inflation rate, which tracks the pace of price rises, was 3.4% in the US in December - and is even lower by some measures, starting to approach the 2% rate the bank considers healthy. Higher interest rates cool inflation by making borrowing more expensive, discouraging people and businesses from taking on debt.
As activity such as home purchasing and business expansion declines, the economy slows and the pressures pushing up prices ease.
Analysts now state the Federal Reserve will not want to leave that pressure on the economy indefinitely, for fear of triggering a recession as a result.
But while growth has slowed and some sectors such as housing have been hit,broadly speaking, the economy has remained unexpectedly resilient, relieving pressure on the Fed to act.
Growth in the final months of the year proceeded at a 3.3% annual rate, while the unemployment rate in December was 3.7%, near historic lows.
In December, forecasts showed that most members of the Fed's rate-setting committee expected rates to stand 0.75 percentage points lower at the end of this year.
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UK economy growth forecasts cut drastically for the next two years
The UK economy will grow much more slowly than expected in the next two years as inflation takes longer to fall, with the latest government forecast.
Living standards are also not expected to return to pre-pandemic levels until 2027-28, the Office for Budget Responsibility (OBR) said. With this announcement coming as the chancellor announced tax cuts and a rise in benefits in his latest Autumn Statement.
The OBR, which is independent from the government, publishes two sets of economic forecasts a year, which are then used to predict what will happen to government finances in the upcoming period.
These are based on an educated prediction on what will happen, and therefore are subject to change. According to the watchdog, the UK will grow by 0.6% this year - a value considerably better than what it expected last autumn, when it predicted the economy would fall into recession and shrink.
However, it slashed its growth outlook to 0.7% in 2024 and 1.4% in 2025 - down from a previous forecast of 1.8% and 2.5%.
The OBR has warned that inflation - currently 4.6% - will only fall to 2.8% by the end of 2024, before eventually reaching the Bank of England's 2% target in 2025.
Previously it forecast inflation would easily beat the target next year. The economy has been struggling with a combination of high inflation, rising interest rates and flagging consumer demand, which is weighing on growth.
The Bank has put up interest rates a staggering 14 times since December 2021 to tackle soaring price rises, leaving them at 5.25% - a 15-year high - at its last two meetings.
And while rates for savers have risen, so have mortgage rates, putting pressure on households.
This has hit property prices, which the OBR said would fall by around 4.7% in 2024.
Turkey's central bank raises interest rates to 40%
Turkey's central bank has raised its main interest rate to 40% as part of a new campaign to tackle soaring inflation in the country.
The rise, from the previous rate of 35%, was much greater than expected. But Turkey's central bank suggested rates were approaching the level required to start lowering inflation.
Inflation hit 61.36% in October and is forecast to rise further and peak in May next year at around 70 to 75%.
While central banks globally have raised interest rates in an attempt to slow rising prices, President Recep Tayyip Erdogan had gone for an opposite approach, arguing that higher rates would cause prices to rise as a result.
However, since his re-election in May, his stance has now changed. The central bank, under its new chief Hafize Gaye Erkan, has been allowed to ramp up interest rates - in an attempt to increase the cost of borrowing and slow down price rises - from 8.5% to 40%.
The central bank's previous policy of cutting interest rates despite high inflation triggered a currency crisis in 2021. It led to the government to introduce a scheme to protect lira deposits from currency depreciation.
Global economic growth will slow in 2024, state banks worldwide
Global economic growth will slow even more in 2024 due to high interest rates, increased energy prices and a slowdown in the world's top two economies, a series of leading banks say.
Geopolitical risk and the wars in Ukraine and the Middle East could also contribute to a worsening global financial outlook, they warn.
Global growth could slow to 2.6% next year from 2.9% this year, according to a Reuters poll forecast. While economists generally agree the world will avoid falling into recession, they highlight the possibility of "mild recessions" in Europe and the UK.
Six out of ten respondents surveyed in the World Economic Forum’s latest Chief Economics Outlook stated that the global economy looked ‘sluggish’ and expect overall conditions in the economy worldwide to decline over the coming years.
Despite chances of a softer landing for the US economy, uncertainty over the Federal Reserve's moves on interest rates makes the future hard to predict.
This has recently been coupled with China's growth being expected to weaken as companies seek more cost-efficient locations for manufacturing globally.
However, some economists have painted a more optimistic picture, pointing to the better-than-expected performance of the global economy in 2023.
With this prediction based around the fact that GDP growth and employment have held relatively steady in major economies facing extreme inflationary pressures worldwide.
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Economists predict Chinese economic output to decline
In a revolutionary turn, China’s rise as an economic superpower is predicted to be reversing. The biggest global story of the past half century may be coming to a close.
Its rise to the peak of the global economy in recent years saw its share of the global economy rise nearly tenfold from below 2% in 1990 to 18.4% in 2021. No nation had ever embarked on a rise so far, so fast in economic history.
Now many are seeing a reversal in this data. In 2022, China’s share of the world economy shrank by a noticeable amount. This year it will shrink more significantly, to 17%. That two-year drop of 1.4% is the largest since the 1960s.
China’s apparent economic decline could have a dramatic effect on world economic order. Since the 1990s, the country’s share of global GDP grew mainly at the expense of Europe and Japan, which have seen their shares hold more or less steady over the past two years.
Now, the gap left by China in the past two years has been filled mainly by the US and by other emerging nations.
Many are predicting the world economy will grow by $8tn in 2022 and 2023 to $105tn. China will account for none of that gain, the US will account for 45%, and other emerging nations for 50%.
China’s GDP is on track to decline in 2023, for the first time since a large devaluation of the renminbi in 1994.
China is one of the few economies suffering from deflation, and it also faces a debt-fuelled property crisis, which typically leads to a devaluation of the local currency as a result.
Investors are now pulling assets out of China at a record pace, adding further to pressure on the renminbi. Foreigners cut investment in Chinese factories and other projects by $12bn in the third quarter — the first such drop since records began.
More expensive services and food prices drive euro zone inflation in October
More expensive services and food prices were the main drivers of consumer price growth in the euro zone in October, data showed on Friday, as the EU's statistics office confirmed year-on-year inflation slowed sharply.
Eurostat said consumer inflation in the 20 countries using the euro decelerated to 2.9% year-on-year in October from 4.3% in September after prices rose 0.1% month-on-month.
Price rises in the services sectors, the biggest part of the euro zone economy, added 1.97 percentage points to the final year-on-year number and more expensive food, alcohol and tobacco added another 1.48 percentage points.
A sharp fall in energy prices subtracted 1.45 points from the final number while non-energy industrial goods added another 0.9 percentage points.
The European Central Bank wants to keep inflation at 2.0% over the medium term and has raised interest rates to record highs to slow down price growth, at the same time slowing euro zone economic growth.
The French government also reported a higher than expected rise in unemployment to its highest level in two years, with younger workers and women disproportionately affected.
However, in Germany there were signs of optimism, from investors at least, who are predicting an economic turnaround is imminent as inflation falls and interest rates stabilise. A collapse in housebuilding however could yet result in wider damage to the EU’s biggest economy and, as in France, danger signs are flashing in its unemployment statistics which continue to raise alarm.
The European Central Bank meanwhile is unlikely to offer relief in the form of interest rate cuts any time soon.
Worries on potential downturn in Canada's economy deepen if US growth fades
Canada's economy is flirting with recession and the downturn could worsen now that a period of rapid growth in the United States is expected to end, generating speculation that the Bank of Canada is shifting to interest rate cuts sooner than previously thought.
The Canadian central bank expects that the economy will avoid a recession, and forecast a growth of 0.8% for both the third and fourth quarters last month.
Since then, preliminary data has indicated a shallow economic contraction for a second straight quarter in the third quarter. Analysts say that if US economic activity slows, then the Canadian economy could shrink in the current quarter as a result.
The Bank of Canada has said it wants to cool the economy just enough to bring down inflation, but it does not want the resulting policy to be so restrictive that it triggers a deep recession as a result.
The Federal Reserve Bank of Atlanta's running estimate of fourth-quarter growth in the United States is at 2%, down from a rapid pace of 4.9% in the third. The BMO also now projects that U.S. growth will slow to 0.9% in the fourth quarter and that Canada's economy will shrink 1%.
The potential for further weakening in the Canadian economy is already evident in money markets. They have moved to price in a rate cut as soon as April after betting just last month that the benchmark rate would not be lowered from its current level of 5%, a 22-year high, before the end of 2024 and that the Bank of Canada may need to tighten further.
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US faces more interest rate rises to cool inflation
The US Federal Reserve chairman has said the central bank will continue to raise interest rates "if appropriate" as inflation remains "too high".
Jerome Powell told an annual gathering of central bankers that the pace of price rises had fallen from a peak.
However, it remains above the Fed's 2% target. In the latest data provided by the Federal Reserve, it;s chairman Jerome Powell said interest rates could rise further and stay higher for longer.
US inflation hit 3.2% in the year to July while the key interest rate is 5.25% - the highest in 22 years - and comes after 11 consecutive rate rises since early 2022.
Many in the Federal Reserve believe inflation has moved down from its peak, but it still remains too high.
This development comes as food and energy prices remained volatile, despite headline inflation falling from its high of 9.1% last year.
The latest data also points to the housing market, where activity had not cooled enough. After decelerating sharply over the past 18 months, the housing sector is showing signs of picking back up towards its previous target, but monetary policies will need to remain firm.
The newest available data also hinted that interest rates could begin to come down, if there were required changes in the labour market, where wage growth has continued as employers dished out higher wages to attract staff in a slowly shrinking workforce.
Higher wages, in theory, add to inflation, prolonging the need for higher interest rates.
IMF forecasts German economy to shrink towards the end of 2023
The International Monetary Fund forecasts the German economy will shrink in 2023, therefore making it the only G7 economy to contract this year.
Sticky inflation and three straight quarters of stagnating output have put Europe’s biggest economy into an unfavourable position towards the end of 2023.
The latest IMF forecast currently predicts the nation to be the only advanced economy to shrink this year — with a forecast contraction of 0.3% compared with an average rise of 0.9% for the 20 countries, including Germany, that use the euro currency.
A prolonged recession would be a disappointing outcome for an economy that, in the decade following the 2008-9 financial crisis, grew by an average of 2% a year, boasted a budget surplus for most of that period and saw its exports boom.
Inflation in Germany is running hotter than in most of its European neighbours. Consumer prices rose 6.2% in July compared with the same month in 2022, well above the 5.3% rate averaged across the euro area.
Falling private and public spending were the main drivers of the recession — defined as two consecutive quarters of declining output — that the country logged last winter.
The European Central Bank has hiked its main interest rate to a historic high of 3.75% to help curb rising prices. But a higher cost of borrowing has hit Germany’s residential building sector harder than most.
More than 40% of construction companies responding to a survey by the ifo Institute last month reported a lack of orders, up from 10.8% a year earlier, which provided further uncertainty about the country’s economic situation.
The wider industrial sector, which includes famed manufacturers such as Volkswagen and Siemens, has also taken a knock. Industrial output contracted 1.7% year-over-year in June, the latest official estimates show.
German business activity, spanning both services and manufacturing, dropped in August at the fastest pace since May 2020.