Although the latest figures show a few divergences, the overall trend in March is towards a slight reduction in uncertainty.The European Commission’s economic uncertainty index declined slightly in March, continuing its easing trend since October 2022, in the various business sectors. The only exception is household uncertainty, which has picked up slightly.
GDP growth, inflation, interest rates and change
Recent data in the US show a resilient economy despite the significant and fast tightening of monetary policy. In the Eurozone, the services sector is a source of resilience. Frustratingly for central banks, inflation has also been resilient. This would call for a strong message of further monetary tightening, were it not that uncertainty about the outlook is high. More than ever, central banks need a robust strategy which takes into account a range of possible outcomes. As a consequence, the message from the FOMC has taken a dovish twist. Reading between the lines, the ECB’s message is also softening, as witnessed by the strong emphasis on data-dependency and the role of financial conditions.
International trade data show quite clearly that the slowing of activity has been accentuated over recent months. Global export volumes, have continued to fall, according to the latest figures (December 2022). Health restrictions in China, which were only relaxed in mid-December, weighed on this dynamic. Nevertheless, global exports saw a 2.6% increase over the whole of 2022, relative to 2021.
In February, economic news on the growth front continued to be quite positive in the major OECD economies, while developments on the inflation side were negative.
The currently high level of inflation remains the biggest threat to the global economy, according to the OECD. Granted, we already seem to have passed the inflation peak several months ago, notably in the United States and the Eurozone. But so far inflation has not fallen much. Yet several factors are helping to reduce inflationary pressures. One of these is the ongoing reduction in the supply-demand imbalance: indeed, supply is coming under fewer constraints while they seem to be rising for demand.
February S&P Global PMI data provided good news overall. One of the key results is the recovery in China's manufacturing PMI, which reached 51.6, its highest level in eight months (compared with 49.2 in January). This improvement is linked to the gradual recovery in factory production since the lifting of health restrictions. In the eurozone, the figures are mixed down in France, Germany and Austria, but up quite sharply in Spain, Italy and Ireland. In the United States and Japan, the index remained below the 50-point threshold, i.e. in a contracting zone for the fourth consecutive month.
Outlook for GDP growth, inflation, interest rates and exchange rates.
The slight upward trend observed since mid-April 2021 has reversed course since year-end 2022 and early 2023, probably in line with the signs of easing inflation through January. In the United States, business uncertainty concerning sales revenues declined in February for the third consecutive month. In contrast, uncertainty over employment prospects rose reflecting the persistent difficulty of filling job vacancies.
GDP Growth, inflation, interest and exchange rates
The latest economic indicators updated on February 20, 2023 and the coming calendar
Near real-time GDP forecasting ("nowcast") models are commonly used by economic analysts who monitor developments in GDP growth on a daily basis before the publication of quarterly national accounts. These models enable an estimate of GDP growth based on indicators that have already been published at the time of forecasting.
As we enter 2023, the economies of the major OECD countries continue to show signs of resilience.
Global PMI indices improved slightly in January but remain at a very low level and cannot be taken as a sign of global activity regaining momentum at the start of 2023.
Outlook for GDP growth, inflation, interest rates and exchange rates
In the manufacturing sector, the global Purchasing Managers’ Index (PMI) showed a slight improvement in January following ten months of declines though still in contraction territory (49.1 points). With the exception of Japan, where the index remained stable, 26 of the 33 countries for which data for January was available reported increases.
In the US, financial conditions have eased in recent months and weighed on the effectiveness of the Fed’s policy tightening. Jerome Powell recently gave the impression of not being too concerned, so markets rallied, and financial conditions eased further despite the hawkish message from the FOMC. In the Eurozone, another rate hike by the ECB and the commitment to raise rates again in March caused a huge drop in bond yields because markets expect we’re getting closer to the terminal rate. It reflects a concern of not being invested in the right asset class when the guidance of central banks will change: based on past experience, one would expect that bond and equity markets would rally when central banks signal that the tightening cycle is (almost) over
The latest economic indicators updated on February 6 2023 and the coming calendar
Some discrepancies have become apparent in the most recent surveys. Uncertainty about US economic policy, based on media coverage, has continued on an upward trend since mid-April 2021, on the back of the tightening of monetary policy by the Federal Reserve. The European Commission's economic uncertainty index fell slightly, due to less uncertainty in the various sectors of activity, with the exception of households.
The worldwide fall in Covid-19 cases has continued for the fifth consecutive week. 1.8 million new cases were reported between 20 and 26 January, down 27% from the previous week. The weekly GDP proxy indicator has recovered significantly in Germany, France, Belgium and Italy, while it remains relatively stable in Spain. In the United States, the United Kingdom and Japan, an increase over the latest data points can be noted
