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.
German economy in recession after high prices take toll, revised figures reveal
The latest figures show Germany has entered a recession, after high prices took a bigger toll on the country’s economy than originally anticipated.
Data from the Federal Statistical Office showed Europe’s largest economy contracted by 0.3% in the first quarter of 2023, compared with the previous three months, when it shrank by 0.5%. The technical definition of a recession is two consecutive quarters of contraction.
A previous estimate suggested Germany had narrowly avoided recession with 0% growth in the first quarter.
The national statistics office stated on Thursday that while private sector investment and construction grew at the start of the year, this was offset in part by a drop-off in consumer spending as higher prices forced households to rein in spending.
Overall, combined household spending dropped 1.2% in the first quarter, with shoppers less willing to spend more on food, clothes, and furniture. Government spending also dipped by 4.9% compared with the previous quarter.
The war in Ukraine has unsettled both businesses and consumers, both holding back on investing and buying respectively, which has severely impacted demand. Interest rate rises by the European Central Bank have so far had very little influence on reducing inflation, which stands at 7% across the eurozone.
Considerably higher heating costs, despite government subsidies, mean German consumers were holding back on spending on other areas of the economy.
The Ifo Index – Germany’s most prominent leading monthly indicator, showed a continuing weak backdrop for businesses. In May it sank again for the first time in half a year. All sectors apart from services were observed to be on the decline.
The state-owned investment and development bank KfW said this week it expected German GDP to shrink by 0.3% overall this year. It added that two-thirds of the most recent downturn may be caused by more work days being lost in 2023 to public holidays than the previous year.
Oil prices rise as Saudi Arabia pledges output cuts
Oil prices have risen after Saudi Arabia said it would make cuts of a million barrels per day (bpd) in July.
Other members of Opec+, a group of oil-producing countries, also agreed to continued cuts in production in an attempt to shore up flagging prices. Opec+ accounts for around 40% of the world's crude oil and its decisions can have a major impact on oil prices.
In Asia trade on Monday, Brent crude oil rose by as much as 2.4% before settling at around $77 a barrel. Opec+ said production targets would drop by a further 1.4 million bpd from 2024.
The seven hour-long meeting on Sunday of the oil-rich nations came against a backdrop of constantly falling energy prices. Oil prices soared when Russia invaded Ukraine last year, but are now back at levels seen before the conflict began in a welcome return for all.
In October last year Opec+, a formulation which refers to the Organization of Petroleum Exporting Countries and its allies, agreed to cut production by two million bpd, equating to 2% of global demand.
In April this year the group agreed to further cuts, which were due to last to the end of this year. Oil producers are grappling with falling prices and high market volatility amid the Russian invasion of Ukraine.
The West has accused Opec of manipulating prices and undermining the global economy through high energy costs. It has also accused the group of siding with Russia despite sanctions over the invasion of Ukraine.
In response, Opec insiders have said the West's monetary policy over the last decade has driven inflation and forced oil-producing nations to act to maintain the value of their main export.
European economy expected to grow faster than forecast, state EU economists
Europe’s economy is expected to grow faster than previously thought this year and next, despite high inflation and rising interest rates, according to the latest figures from the European Commission.
The commission said the EU’s 27 members would grow at an average of 1% in 2023, up from a previous estimate of 0.8%. It nudged its forecast for growth in 2024 to 1.7% from 1.6%. With this information, the eurozone’s 20 members are expected to grow by 1.1% on average and 1.6% next year.
By comparison, the UK economy is expected to be weaker, with growth of 0.25% expected this year and 0.75% in 2024, according to the latest figures published by the Bank of England.
With fears of a recession easing, EU growth so far this year has been much stronger than expected when the last growth estimates were made in February. Ireland will lead the EU growth league over the next two years as it has done for the past two years.
Dublin is forecast to enjoy a growth rate of 5.5% and 5% in 2023 and 2024, respectively, after amassing a growth rate of 13.6% in 2021 and 12% in 2022.
France’s growth rate will accelerate from 0.7% in 2023 to 1.7% in 2024 while Germany’s economy, which was hit hardest by sanctions on Russian gas, is expected to expand by 0.2% this year and 1.4% next year.
Estonia and Sweden are the only EU countries to suffer a contraction this year – Sweden by 0.5% and Estonia by 0.4%, before both make modest recoveries in 2024.
For the first time, European Commission officials have examined the prospects for Ukraine’s economy in its quarterly forecast – a move made in response to Brussels accepting the war-torn country as a candidate for EU membership last year.
In this time period, Ukraine had demonstrated a remarkable resilience during the war and much of its economy was able to continue operating.
Ukraine’s GDP is estimated to have slumped by 29% in 2022. This year growth is expected to be just 0.6%, rising to 4% in 2024, the commission said, although the ongoing path of the war will be crucial to the outcome for expected economic growth.
China’s economic data misses expectations as economy continues to show an uneven path to recovery
China’s economic data for April missed expectations as the economy continued to show an uneven path of recovery from the impact of its stringent Covid restrictions.
Industrial production for April rose by 5.6% year-on-year, compared to the 10.9% expected by economists surveyed in a Reuters poll. The figure was up 3.9% in March following a muted start to the year.
Retail sales rose by 18.4% – lower than economists’ forecast of a surge of 21%. Fixed asset investment rose by 4.7%, against expectations of 5.5%. The reading rose 5.1% the previous month.
China stocks have pared most of the gains seen this year. The Shenzhen Component was down 4.67% quarter-to-date and up only 1.48% year-to-date, seeing a 9.5% drop from its peak in early February.
China’s latest data follows a mixed picture in the country’s growth trajectory, with services remaining a bright spot in the economy despite factory data falling into contractionary territory in April.
The Caixin China general manufacturing purchasing managers’ index fell to 49.5 in April, marking the first reading below the 50-mark in three months. The 50-point mark separates growth from contraction.
The National Bureau of Statistics’ manufacturing PMI also fell to 49.2 in April from March’s reading of 51.9.Imports for the month also plunged further by 7.9%, missing estimates – exports rose 8.5%.
The latest data included a 20.4% youth jobless rate, the unemployment rate between ages 16 and 24. The reading in April marked a record high.
Citi economists said youth unemployment remains a consistent problem, despite an overall steady labour market – with the latest data showing that the surveyed jobless rate dipped to 5.2% in April from 5.3% in March.
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.
The UK grew only weakly in the first three months of the year with the economy hit by strikes, cost of living pressures and impacts of wet weather.
The economy grew by just 0.1% between January and March, figures showed, and it remains smaller than levels seen before the Covid pandemic.
The UK is also lagging behind growth seen in other major economies. On Thursday, the Bank of England said it was more optimistic about prospects, and the UK would avoid a recession.
Its comments came after the Bank increased interest rates to 4.5% from 4.25% as part of its continued attempt to slow soaring prices.
The ONS figures showed that while the economy grew slightly over the first three months of 2023, in March it contracted by 0.3%, with car sales and the retail sector having a bad month.
The economy is still 0.5% smaller than pre-pandemic levels, the ONS said. While the UK outperformed Germany in the first three months of the year, many other major economies grew faster in the same period, further reinforcing the poor economic output encountered across the UK.
The economy just about grew in the first quarter of this year, but at 0.1% that was by the smallest possible margin. The fall in March, the latest month, is of some concern with the service sector going into a decline, and car sales continuing to disappoint.
While the engine of growth in the economy is on, the UK is going to have to wait a little longer for the impacts of this to be felt.
G7 finance ministers warn of ‘uncertainty’ on global economic outlook
G7 finance ministers have warned of “heightened uncertainty” surrounding the global economy and the need to address regulatory gaps in the banking system in the wake of the most recent financial sector disruption.
The global economy has shown resilience against multiple shocks, was the statement multiple finance ministers of the world’s most advanced economies said in their final communique after a three-day ministerial meeting in Japan on Saturday.
However, many voiced their opinions regarding a need to remain vigilant and stay agile and flexible in enforcement of economic policies in the wake of recent economic predictions.
The finance ministers also noted the need to fill data, supervisory and regulatory gaps in the banking system that have emerged following the March collapses of Silicon Valley Bank and Signature Bank and the failure of First Republic in recent weeks.
The US and its G7 partners have made removing sanctions loopholes and combating evasion their key priority in recent months as, more than a year after Russia’s full-scale invasion of Ukraine, the appetite for imposing restrictions on various parts of Russia’s economy wanes.
Against that backdrop, the finance ministers also agreed to strengthen sharing of intelligence on possible sanctions dodging, and monitor the effectiveness of the price caps on Russian crude oil and petroleum products.
The G7 nations have also committed to providing economic support of $44bn to Ukraine, enabling the IMF’s approval of a four-year lending programme worth $15.6bn as a result.
According to people briefed on the ongoing discussions, Brussels is also discussing restrictions on certain EU exports to countries that it suspects are re-exporting various sanctioned products to Russia to prevent critical components from ending up in the midst of the ongoing conflict.
US inflation below 5% for first time in two years
Prices for various products such as milk, airline tickets and new cars fell across the US last month, helping to drive inflation down to its lowest rate in two years.
Inflation was 4.9% in the 12 months to April, the latest official figures show. This value was down from 5% in March, and marks the tenth month in a row that price rises have slowed across the country.
The fall comes after the US central bank has sharply raised interest rates to try to control inflation. And this unfolded as Inflation in the US peaked last June at 9.1% - the highest it has been since 1981.
But officials have hesitated to declare further success, as a problem that once seemed contained to particular sectors - such as energy and manufactured goods - has spread rapidly throughout the economy.
Housing, petrol and used car prices all jumped from March to April. The cost of haircuts, veterinary visits and gardening services has also climbed.
And though no longer rising uncontrollably, overall prices continue to rise far more quickly than the 2% rate the Federal Reserve considers sustainable.
Core inflation - which does not include food and energy prices, which change frequently - rose by 5.5% in the 12 months to April.
The Federal Reserve has raised interest rates 10 times since last March, bringing them to the highest levels since 2007 as multiple attempts to contain the rising rates have not been successful.
The latest moves are intended to discourage people from borrowing, leading economic activity to slow and easing the pressures that are continuing to push up prices.
Economists have also stated the latest figures could help convince policymakers to pause, but they warned that progress remains tentative rather than the desired rapid response.
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.
Bank of England hikes interest rates again following inflation shock
The Bank of England has once again hiked interest rates by a quarter of a percentage point Thursday, extending its long-running fight to rein in prices after a surprise increase in inflation observed in February.
The central bank’s 11th consecutive rate hike takes benchmark borrowing costs to 4.25%, the highest since October 2008. Like other major central banks, it has pushed ahead with raising rates despite recent turmoil in the banking sector in the race to deal with the fallout of banking collapses in both the US and EU.
The Bank of England said in a statement that since its last meeting in February, inflation had surprised significantly on the upside and the near-term path of GDP was likely to be somewhat stronger than previously expected.
Employment growth had also been more robust than anticipated and household disposable income was now expected to remain flat in the near term, rather than falling significantly after the government extended its support for energy bills.
It said that it would raise rates further if there were to be evidence of more persistent price pressures.
UK consumer prices surged by 10.4% in February compared with a year ago, the first observed rise in inflation in over four months, as food prices soared and the cost of visiting restaurants and hotels increased.
The turmoil in the banking sector has increased uncertainty over the inflation outlook, because banks are now widely expected to quickly tighten their lending criteria, which would weigh on consumer demand and business investment, and therefore alleviate any further price pressures as a result.
The Bank of England said it would continue to closely monitor any effects from the banking crisis on credit conditions faced by households and firms, with it adding that the UK banking system remains resilient in spite of the recent global financial worry.
IMF chief warns global financial stability at risk from recent banking turmoil
The head of the International Monetary Fund has warned that the global economy faces risks to its financial stability because of the recent developments in the disrupted banking sector.
Kristalina Georgieva, the managing director of the Washington-based IMF, gave a stark warning that the rising interest rates had drastically increased pressure on debts, leading to stresses in leading economies, including among the key lenders of the global financial markets.
Georgieva said the world economy would expand by just 3% in this year as rising borrowing costs, combined with the war in Ukraine and scarring from the Covid-19 pandemic, would continue to suffocate economic growth.
Adding to a growing list of concerns from economic leaders, the IMF chief said it was clear that risks to financial stability had taken a dramatic turn after the recent collapse of Silicon Valley Bank and the Swiss-government brokered emergency rescue of Credit Suisse by UBS.
Investors will be keenly watching shares in Deutsche Bank when European markets reopen on Monday after they led the sell-off in banking stocks on Friday of last week as the fallout from financial struggles continues.
Her stark comments came as the European Central Bank (ECB) said the recent turmoil in banking would have a real-world impact on business and growth not only in Europe but globally as well.
The EU central bank fears problems in the banking sector will result in lower growth and dampen inflation, which was echoed by ECB vice-president Luis de Guindos.
As economic stress increases in the UK, EU and the US, so-called shadow banks, a term for non-bank financial institutions, could further expose cracks in the financial system, thus leading to even further financial disruption as a result.
This statement came as regulators in Switzerland continued to grapple with the fallout from the collapse of Credit Suisse. Public pressure has mounted on regulators after a vast package of support for the bank in the wake of its emergency merger with fellow Swiss bank UBS.
The controversies over the recent bailout have added to concerns over the global financial crisis caused by the recent toppling of major financial institutions in the US and Switzerland as the shaky period for the world economy continues.
US government raises interest rates despite recent banking turmoil
The US central bank has raised interest rates again, despite fears that the decision could add to financial turmoil after a string of bank failures.
The Federal Reserve increased its key rate by 0.25 percentage points, calling the banking system "sound and resilient" after the recent key events in the US banking crisis.
But it also warned that fallout from the bank failures may hurt economic growth in the months ahead, with the Federal Reserve raising borrowing costs in a bid to stabilise prices as economic woes continue.
But the sharp increase in interest rates since last year has led to further strains appearing in the banking system.
Two US banks - Silicon Valley Bank and Signature Bank - collapsed in March, buckling in part due to problems caused by higher interest rates introduced in recent months.
There are now concerns about the value of bonds held by banks as rising interest rates may make those bonds less valuable with each passing rate hike.
Banks tend to hold large portfolios of bonds and as a result are sitting on significant potential losses, which is further adding to the visible concerns seen in banks across the US.
Falls in the value of bonds held by banks are not necessarily a problem unless they are forced to sell them, which could become a reality if the struggles continue.
Authorities around the world have said they do not think the failures threaten widespread financial stability and need to distract from efforts to bring inflation under control.
Last week, the European Central Bank raised its key interest rate by 0.5 percentage points in a further response to the banking crisis which has seen various global impacts.
UBS shares slide 10% as Credit Suisse shares drop by over 60% in the wake of takeover rescue deal
Shares of Credit Suisse and UBS led losses on the pan-European Stoxx 600 index on Monday, shortly after the latter secured a 3 billion Swiss franc ($3.2 billion) “emergency rescue” of its troubled domestic competitor.
Credit Suisse shares collapsed by 60%, whilst UBS traded 10% lower. This led to further decline in Europe’s banking index, which was down nearly 2% around the same time, with lenders including ING, Deutsche Bank and Barclays all falling by over 4%.
The declines come shortly after UBS agreed to buy Credit Suisse as part of a cut-price deal in an effort to stem the risk of contagion to the global banking system in the wake of the SVB collapse last week.
Swiss authorities and regulators helped to facilitate the deal, announced Sunday, as Credit Suisse looked dangerously close to initial collapse.
The size of Credit Suisse was a concern for the banking system, as was its global footprint given its multiple international subsidiaries. The 167-year-old bank’s balance sheet is around twice the size of Lehman Brothers’ when it collapsed, at around 530 billion Swiss francs at the end of last year.
The UK population faces the biggest fall in spending power for over 70 years as inflation continues to bite
People face their biggest fall in spending power for 70 years as the surging cost of living eats into wages.
The government's independent forecaster said that household incomes - once rising prices were taken into account - would drop by over 6% this year and into next year as well.
Living standards won't recover to pre-pandemic levels until 2027, which was revealed as Chancellor Jeremy Hunt said the economy would shrink this year but avoid recession in his latest spring budget announcement.
Energy and food bills have shot up due to the war in Ukraine and pandemic, and are squeezing household budgets as the current rate of inflation sits in double digits.
It is set to more than halve to 2.9% by the end of this year, according to the Office for Budget Responsibility (OBR). But for now, the figure remains very high, and well ahead of average wages as the cost of living crisis continues to worsen.
The drop in real household disposable income would represent the largest two-year fall in living standards since records began in the 1950s, only emphasising the seriousness of the situation.
The OBR looks at the government's tax and spending plans in the Budget and then predicts how the country will perform over the next five years.
Previously it had expected the UK to fall into recession at the end of last year and continue to shrink all of this year. The last time the UK's economy went into recession was in 2020, at the height of the coronavirus pandemic.
The OBR now expects the UK economy to contract by 0.2% this year but avoid a recession, before an observed growth by 1.8% in 2024, 2.5% in 2025 and 2.1% in 2026.
Argentinian inflation soars past the 100% mark
Argentina's inflation rate has soared past 100% for the first time since the end of hyperinflation in the early 90s as the country's economic crisis continues to take hold.
Inflation hit 102.5% in February, the country's statistics agency said, meaning the price of many consumer goods has more than doubled since 2022.
The Argentinian government has been trying to stem price rises by capping the prices of food and other products.
But the food and drink sectors recently saw the most dramatic increase, with prices growing by 9.8% in February compared to January.
The Argentinian government has long tried to contain inflation, but divisions have marred the country's economic policy as it looks to combat the continued rise in inflation levels.
In December, the International Monetary Fund (IMF) approved another $6bn (£4.9bn) of bailout money as the country looked to ease economic troubles.
It was the latest payout for Argentina in a 30-month programme that is expected to reach a total of $44bn.
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.
Drastic drop in Silicon Valley Bank shares, triggers slump in global financial sector trading
Shares in banks around the world have fallen after troubling factors at one US bank sparked fears of a wider problem for the financial sector.
Shares in Silicon Valley Bank (SVB), a key player in money lending to technology start-ups, plunged after it announced plans to further shore up its finances in the wake of financial difficulties.
This had a knock-on effect, with the four largest US banks losing more than $50bn in market value which was accompanied by bank shares in Asia and Europe falling sharply at the end of last week.
Among the UK banks, HSBC shares fell 4.8% and Barclays dropped 3.8%.
SVB's shares saw their biggest one-day drop on record on Thursday the 9th March, after they plunged by more than 60% and lost another 20% in after-hours trade as investors looked to offload shares in an attempt to avoid further losses.
This slide came a day after the bank announced a $2.25bn (£1.9bn) share sale to boost its finances in the midst of the challenging economic situation.
In the wider market, there were concerns about the value of the bonds held by banks as rising interest rates continue to make these bonds less valuable over time.
Central banks around the world - including the US Federal Reserve and the Bank of England - have sharply increased interest rates as they try to curb inflation in response to the growing economic situation.
Banks tend to hold large portfolios of bonds and as a result are sitting on significant potential losses.
The continued fall in the value of bonds held by banks is not necessarily a problem unless they are forced to sell them if the current economic situation continues to worsen.
UK economy rebounds by 0.3% ahead of Jeremy Hunt’s Spring Budget announcement
The U.K. economy grew by 0.3% in January, with official figures shown on Friday, exceeding current expectations as it continues to fend off an inevitable recession in Q1 of 2023.
Economists polled by Reuters had projected a 0.1% monthly increase in GDP.
The services sector grew by 0.5% in January 2023, after falling by 0.8% in December 2022, with the largest contributions to economic growth in January 2023 coming from education, transport and storage, human health activities, and arts, entertainment and recreation activities, all of which have rebounded after apparent declines in December 2022.
Production output fell by 0.3% in January after growing 0.3% in December, while the construction sector dropped by 1.7% in January after flatlining the previous month.
The U.K. economy showed no growth in the final quarter of 2022 to narrowly avoid a recession, but it was found it shrunk by 0.5% in December.
The U.K. remains the only country in the G-7 major economies that has yet to fully recover its lost output during the Covid-19 pandemic. With the ONS stating on Friday that monthly GDP is now estimated to be 0.2% below its pre-pandemic levels.
Both the Bank of England and the Office for Budget Responsibility have recently forecast a five-quarter recession which kickstarts in the first quarter of 2023, but the data has so far exceeded expectations with positive results on display.
Despite the better-than-expected January print, economists still broadly believe activity is on a downward trajectory, as high inflation continues to eat into household incomes and business activity.
U.K. inflation slowed to an annual 10.1% in January, continuing to shrink after hitting a 41-year high of 11.1% in October but staying well above the Bank of England’s 2% target which is considered sustainable.
US jobs growth remains strong despite continued rate rises
Jobs growth in the US remained strong last month, as the world's largest economy continued to defy expectations of a slowdown as the economic outlook remains bleak.
Employers added 311,000 jobs in February, more than expected, with bars and restaurants driving the gains observed across the nation.
The unemployment rate however, continues to edge higher with an increase in February of 3.6%, marginally increased from 3.4% in January, which had been the lowest rate since 1969.
The US central bank is trying to cool the economy to ease the pressures pushing up prices as the battle to wrestle back economic shortfalls continues.
However, the US employment market has been resilient, even as the federal bank continues to raise interest rates to the highest levels since 2007.
While this rate has fallen since last summer, it remains far higher than the 2% rate that most central banks consider a sustainable level.
February's job gains followed a surge of hiring in January that surprised economists across the country.
The tight labour market has helped to further push up wages, with average hourly pay in February 4.6% higher than a year earlier, according to the latest data report published by the US Labor Department.
Despite this robust labour market, many analysts say there is a high risk that the US economy will slow sharply and tip into a recession if the economic shortfalls continue.
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.
Chinese stocks fall on modest growth targets, whilst Hong Kong shares display a slight improvement.
China stocks fell after Beijing introduced a new modest economic growth target of 5% for 2023, undercutting expectations of a big economic push, whilst Hong Kong shares rose slightly in the light of this recent news.
China’s blue-chip CSI 300 closed down 0.5%, while the Shanghai Composite Index lost 0.2%.
Hong Kong’s Hang Seng Index was up 0.2%, and the China Enterprises Index was little changed.
China has recently announced a modest target for economic growth this year of around 5%, as it looks to kickstart the annual session of its National People’s Congress (NPC), which is set to implement the biggest government shake-up in over a decade of national politics.
This latest shakeup of the economic leadership’s focus in 2023 can help to provide investors further clues on the economic outlook of the Chinese economy as it looks to rebound from a disappointing start to the fiscal year.
Further economic information was provided on Chinese stocks with the performance of The CSI Defence index, which gained 1.2% after China said it will look to further boost defence spending by 7.2% across 2023.
The CSI Telecom index rose 1.2%, while the Coal index and Energy index dropped 2.4% and 1.3%, respectively.
A similar trend was also seen in the Hong Kong market, with the Hang Seng Telecom index up 3.0%, while shares of mainland properties down 0.7%.
Tech giants in Hong Kong declined 0.8%, with Tencent down 1.3% and Alibaba losing 0.9%.
Euro zone inflation softens to 8.5% in February as the ECB signals interest rate hiking is set to continue for the foreseeable future.
New data fresh out of the euro zone on Thursday suggested that inflation is taking a while to come down significantly, further raising prospects of new rate hikes in the coming months.
Headline inflation figures across the 20-member bloc came in at 8.5% in February, according to preliminary data released which hinted towards further interest rate increases as the measures to combat inflation are continued.
Further indication that prices are not coming down at the pace that had been registered in recent months could be seen with the headline inflation standing as high as 10.6% in October, but this number reached a revised 8.6% in January as disappointment continued.
Analysts were expecting a lower February inflation rate of 8.2%. But this figure has been offset with food prices increasing month-on-month which contrasted against the declines in energy costs across the economic bloc.
On top of a small drop in headline inflation, the core figure picked up to an estimated value of 5.6% in February, from 5.3% in January, a small but very noticeable increase.
When combined, this latest batch of economic data further fuels continued discussions that the European Central Bank could keep its firm stance for longer as the dogged approach to tackling inflation looks set to continue over the upcoming months.
The world’s biggest shipping company places its hopes on a rebound for the global economy as world trade continues to return to pre-pandemic levels.
MSC, Mediterranean Shipping Company, the world’s largest ocean freight line, is placing its hopes in more positive signals for the global economy for trade demand, but it will be months before a rebound takes hold.
Over the past several quarters, a large global demand drop and significant supply chain disruptions have influenced the global supply chain and subsequent economic impact has therefore been noticeable.
The Switzerland-based shipping firm, which is widely seen as a barometer for global trade, has a 17.5% market share in container traffic globally and is a key player in the supply chain markets.
Ocean freight bookings are very much dependent on manufacturing orders. U.S. retailers had pulled back manufacturing orders by as much as 40% due to consumer softening and warehouse inventories at historic levels over the course of 2022, which resulted in a drastic drop in shipping levels internationally.
The lack of warehouse capacity is also driving rates to all-time highs, in the form of inflationary pressure that is passed onto the consumer, which is seen in rising inflation rates globally.
Ocean freight rates, which were the largest inflationary pressure on products, have dropped sharply back to pre-pandemic levels.
The combination of the weaker demand and lower prices has led ocean carriers to cancel sailings and by restricting the amount of sailings, shippers shrink the amount of available vessel capacity to put on a container, resulting in further bottlenecks to global trade.
Rejections for ocean freight have also increased, which means containers filled with product for the current or upcoming season are delayed.
This has led to logistics managers speculating that this will create a bottleneck in their supply chain, which could lead to further negative economic impact over the coming months.
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UK in surprise boost after record tax payments in January
The UK government saw a surprise surplus in its finances in the month of January despite substantial spending introduced to help with energy bills and EU payments.
The highest self-assessed income tax receipts since records began in 1999 boosted the UK's coffers. It meant it spent less than it received in tax, leaving a £5.4 billion surplus.
Economists said the figures showed a "mixed picture" with public finances still weaker than this time last year ahead of next month's Budget as Chancellor Jeremy Hunt looks to set out his plans for tax and spending in the upcoming weeks.
Public borrowing in the financial year to date is £30.6 billion less than predicted by the Office for Budget Responsibility (OBR), the government's official forecaster.
Annually in January, the government tends to take more in tax than it spends in other months due to the amount it receives in self-assessed taxes, according to the Office for National Statistics (ONS).
But most economists had predicted borrowing to rise this time, in part due to the large amount the government is spending on supporting households with their energy bills.
In addition, the ONS stated the government had faced "large one-off payments" in January relating to historic customs duties owed to the EU in the wake of Brexit.
However, these costs were largely offset by record self-assessed income tax payments of £21.9 billion in January, which has left the government with a surplus.
German economy shrinks more than expected by 0.4% in fourth quarter of 2022
The German economy shrank by 0.4% in last year's fourth quarter with the latest reports from the National Statistics Office.
The German economy shrank by 0.4 per cent in last year's fourth quarter, the national statistics office said Friday, a sharp downward revision from its initial report that gross domestic product declined by 0.2 per cent.
The quarter-on-quarter contraction in the October-December period was the first since the first quarter of 2021.
Consumer spending, which propped up growth in the first nine months of last year, dropped by 1 per cent in the final three months of 2022.
Investment in construction and machinery showed bigger drops in the final quarter, the Federal Statistical Office said.
The full-year 2022 growth figure for Germany, Europe's biggest economy, remained at the 1.8 per cent that the office reported at the end of January.
The economy has generally held up well, despite pressure from high inflation and fears last year of an energy crunch as Russia reduced and then cut off its gas supplies to Germany.
Cash-strapped Pakistan receives funds worth $700 million from China Development Bank
Pakistan Finance Minister Ishaq Dar has confirmed that the State Bank of Pakistan (SBP) has received USD 700 million from the China Development Bank (CDB).
This comes as a much-needed boost to the country's forex reserves as the country suffers from an economic crisis.
Earlier this month, the country's foreign exchange reserves slipped to the alarming level of below USD 3 billion for the first time in nine years, reducing import capacity to slightly over two weeks, according to The Express Tribune.
Pakistan has sought to secure assurances from Saudi Arabia and China for more loans, as the government seeks to revive the International Monetary Fund (IMF) programme.
The current situation in Pakistan is the most difficult faced by the country in the last two decades.
In December 2022, inflation in the country stood at 24.5 per cent, almost double of 12.3 percent from the previous year.
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US inflation remains high as housing costs bite
Inflation in the US has cooled for a seventh month in a row, but prices continue to rise far more quickly than is considered healthy.
The inflation rate was 6.4% in the 12 months to January, driven higher by jumps in housing, food and energy costs. This was down slightly from 6.5% in December. However, officials have warned that it will take time to stabilise prices, despite the most recent signs of improvement.
Among food prices, the cost of beef has fallen from a year ago. But egg prices are up 70% compared with January 2021, while butter and margarine costs have jumped by nearly a third. Prices for televisions, smartphones and used cars and trucks have fallen compared with a year ago.
However, housing costs - one of the biggest components of the price index -have climbed more than 7%,driven by higher rents, and prices of services such as haircuts continue to rise rapidly.
The US central bank, the Federal Reserve, has responded to the problem by aggressively raising interest rates, a move intended to cool the economy and ease the pressures pushing up prices.
But the jobs market has remained more robust than expected, fuelling intense debate among economists about how high borrowing costs will have to go to return inflation to the 2% rate considered healthy - and whether the economy can handle the increase without tipping into a painful recession.
Singapore posts worst non-oil domestic exports in a decade
Singapore’s non-oil domestic exports plunged 25% year on year in January — their largest drop in 10 years.
The latest government data showed Singapore’s non-oil exports to its top markets led the wider decline, with exports to China falling by more than 41%, to the U.S. by 31.5% and to Hong Kong by more than 55% for the month.
The reading marks the fourth consecutive contraction and the steepest fall since February 2013, when the economy saw more than a 30% decline.
Non-oil retained exports also fell 10.4% in January, following the 7.2% decline in December. Total trade also fell by 10.4% year on year, with total exports dropping 9.6% and imports contracting by 11.3%.
The Singapore dollar weakened slightly after the release and the Straits Times index traded marginally higher in Friday’s morning trade.
The disappointing trade data comes days after Singapore released its latest budget for the year. Experts expect Singapore’s economy to grow marginally by 0.7% in the full year.
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FTSE 100 hits fresh all-time high as inflation and recession fears ease
The UK’s blue-chip shares index has hit a fresh all-time high, only days after a previous record was set last Friday.
The FTSE 100 index rose by almost 1% on Wednesday morning, eventually peaking at 7934.30 points, surpassing the former high of 7,906.58 points set on 3 February.
Before that date it had taken more than four years to surpass the previous high set in May 2018.
The FTSE 100 ended the day at 7885 points, up 20 points or 0.25%, but below last Friday’s record closing high.
Global markets have rallied in the first weeks of this year on hopes that inflation may be easing, after the shock prompted by the soaring energy prices seen globally.
The FTSE began to rally at the start of the year, as investors welcomed China’s decision to relax Covid-19 restrictions, which could further support global growth. They have also been heartened by the slide in US inflation, as well as the country’s strong employment figures.
The FTSE 100’s rise has arrived amid growing hopes that the UK could avoid a recession, with the National Institute of Economic and Social Research forecasting Britain was now likely to avoid two quarters of contraction in 2023.
Pakistan IMF: Crucial bailout deal eludes negotiators
Eleventh-hour negotiations between Pakistan and the International Monetary Fund (IMF) have failed to unlock $1.1bn in crucial funds aimed at preventing the country from going bankrupt.
A deepening economic crisis has all but emptied Pakistan's foreign exchange reserves, leaving it barely enough dollars to cover a month of imports and it is struggling to service sky-high levels of foreign debt.
The IMF team, which leaves Islamabad on Friday, said "considerable progress" had been made after 10 days of talks.
In January annual inflation soared to over 27%, the highest it's been in Pakistan since 1975, and there are mounting fears for the economy in a pivotal election year.
This week the rupee sank to a historic low of 275 to the dollar, down from 175 a year ago, making it more expensive for Pakistan to buy and pay for things. Alongside this, the lack of foreign currency is one of the most pressing of Pakistan's problems.
Pakistan, like many countries, is suffering heavily from the coronavirus pandemic and Russia's invasion of Ukraine, following which global fuel prices have soared. Pakistan relies heavily on imported fossil fuels and importing food has also become more expensive.
As for bailouts, Pakistan is no stranger to them. The country - which has a massive military budget and years of debt-driven infrastructure spending - has long failed to rid itself off populist subsides and stabilise its economy to suitable levels.
EU set to avoid recession following gas price fall
The EU is set to dodge a previously forecast recession as falling gas prices, supportive government policy and firm household spending boost the region’s outlook, according to the latest outlook from the European Commission.
Brussels lifted its predictions for EU growth this year to 0.8 per cent, stronger than the 0.3 per cent forecast in November, and said the region would avoid a technical recession — defined as two successive quarters of economic contraction.
The euro area is forecast to expand 0.9 per cent in 2023, better than the 0.3 per cent that the commission expected in its previous prediction towards the end of last year.
The spectre of shutdowns in Russian gas supplies coupled with falling industrial output and flagging business sentiment fanned fears last autumn that the EU was heading into a deep recession.
However, a mild winter and government subsidies have also helped ease pressure on households and businesses, as Europe’s gas benchmark price fell well below the levels recorded during the summer of 2022.
The region’s economy managed to avoid a contraction during the final quarter of last year — in part due to strong growth figures for Ireland bolstering the data.
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IMF chief says global economic outlook ‘less bleak’ than feared
Prospects for the global economy have brightened amid signs that inflation is retreating from its four-decade high, the head of the International Monetary Fund has said.
Speaking at the closing session of the World Economic Forum in Davos, Kristalina Georgieva said growth prospects had picked up in recent months but warned against overoptimism for the newly found outlook.
Georgieva’s remarks followed the recent falls in annual inflation rates across the US, the eurozone and the UK. The IMF will release a variety of updated forecasts for the global economy at the end of the month and the IMF managing director hinted there would be a small change to her organisation’s current forecast of 2.7% growth for 2023.
The current outlook has been brightened with the abandonment of the zero-Covid strategy in China, as the economic superpower looks to regain a footing. This has also been accompanied by strong labour markets that have boosted consumer spending.
Inflation in the UK likely to fall alongside decreasing energy prices
Inflation across the UK is predicted to fall rapidly over 2023 as energy prices decrease over the coming months.
The pandemic and the cost of living crisis meant a UK recession is still on the cards.
A major component of inflation - how fast prices rise - has been soaring energy costs as economies recover from Covid and Russia's war in Ukraine pushes up oil and gas prices.
However, wholesale energy costs have been falling in recent weeks, and energy bills are more than previously forecast, meaning the path of inflation could be on a simpler trajectory.
Last October markets expected UK interest rates to peak as high as 6% - partly reflecting ongoing turmoil triggered by Liz Truss's brief stint as prime minister.
Financial markets now expect the Bank to raise its main interest rate to 4% from 3.5% on 2 February, although there could be a smaller quarter-point rate rise as various options are explored.
Bank of Japan defends yield curve control measures
Bank of Japan Governor Haruhiko Kuroda on Friday defended the central bank’s decision to widen the trading band in its yield curve control program and committed to continuing the BOJ’s “extremely accommodative” expansionary monetary policy.
Since the move, 10-year JGB benchmark yields have exceeded the upper ceiling several times.
The BOJ on Wednesday opted to keep its ultra-dovish -0.1% interest rate unchanged and maintained its yield curve tolerance band. The decision prompted the Japanese yen to fall against the U.S. dollar and followed weeks of bond market turmoil during which yields jumped.
It leaves the BOJ at odds with other major central banks, which have hiked interest rates in a bid to tackle rising inflationary pressure.
Japan’s inflation rate jumped to a fresh 41-year high in December. The rate is still relatively low when compared to some other countries.
Nonetheless, the world’s third-largest economy reported core consumer prices rose to 4% on an annualised basis in the final month of last year, double the central bank’s target of 2%.