According to its final estimate, the S&P Global Composite PMI improved slightly in November, wiping out almost all the decline recorded in October. The November index stood at 50.4 (compared to 50.0 in October and 50.5 in September), ending a five-month decline. This is a slightly positive signal for global growth in the middle of Q4 2023.This modest improvement can be seen in both manufacturing and services.
Updated data on GDP growth, inflation, interest and exchange rates.
The latest inflation data from the major developed economies have helped fuel the decline in bond yields and reinforced the conviction that the first policy rate cuts will take place in the first half of 2024 in the US, the euro area and the UK.
The evolution of international trade is sending rather reassuring signals about the state of global demand. New machinery and equipment orders from South Korea, as well as export orders from Taiwan – generally seen as two reliable indicators of global manufacturing activity – rebounded sharply in October.
GDP growth, inflation, interest and exchange rates.
Whether one likes it or not, China has a key role in the “green” industrial revolution that will take economy to climate neutrality. In the transition to all-electric, particularly as it is happening in Europe, it is even strengthening its positions. The planned ban on the sale of new petrol and diesel cars will bring the end of a technological barrier that has thus far allowed European manufacturers to excel, whilst keeping Chinese-made vehicles away from their markets.
In the United States, economic policy uncertainty, based on media coverage, increased in October for the second month in a row. The rise is probably related to the ongoing risk of a US government shutdown, and also to some uncertainty around the tone of the Fed’s statement after the FOMC meeting of 31 October-1 November.
GDP growth, inflation, exchange and interest rates
The range of first estimates of Q3 GDP growth is quite broad, ranging from a very positive figure in the United States (1.2% q/q) to a return to stagnation in Europe (-0.1% q/q in the euro area and 0% q/q in the United Kingdom), after a temporary acceleration in Q2. At the same time, Japanese growth posted a clear correction (-0.5% q/q) after two very positive quarters.
US household consumption was 10% above its pre-Covid-19 level in the third quarter of 2023 when French one was only slightly above (1%). This dynamism across the Atlantic is based on a somewhat more favourable trend in purchasing power but, above all, on a fall in the personal savings rate. American households have apparently showed a greater sensitivity to improving labour market conditions. As the latter are becoming less favourable and US households now have fewer extra savings to cushion the impact of monetary tightening, US growth could lose significant support.
Latest data on GDP growth, inflation, interest and exchange rates.
Several central bankers have recently insisted that the ‘last mile’ in the marathon towards the inflation target may be the most challenging. After an initial swift decline of headline inflation on the back of favourable base effects due to lower energy prices, further disinflation may take more time. Corporate pricing power, inflation expectations and wage growth play a key role in this respect. By insisting on the ‘last mile’, central bankers probably want to avoid sounding too optimistic on disinflation. Otherwise, financial markets might price in early rate cuts, which would cause an easing of financial conditions in capital markets that would neutralize part of the monetary tightening
The fall in the global composite PMI index continued in October. It hit the dividing line between the expansionary and contractionary zones (50.0, from 50.5 in September). This is a sign that global economic activity is flatlining in this early part of the fourth quarter of 2023.
Updated GDP, inflation, interest and exchange rates data.
Global exports have levelled off for almost two years, after a strong increase in 2021. Export growth has stagnated in both emerging and advanced economies. However, the CPB data show a slight rebound in exports in volume terms in August, at 1.1% m/m, although the annual rate is still negative at -2.3%. The monthly increase was driven by China (+5.3% m/m) and the United States (+1.3% m/m),
GDP growth, inflation, interest rates and exchange rates
The geopolitical risk index, which is based on the number of newspaper articles mentioning adverse geopolitical events, has recorded a huge increase in October. Whether this influences decisions of households and firms depends, amongst other things, on the (ir)reversibility of these decisions. Based on empirical research on the consequences of a significant increase in uncertainty, there is a concern that the recent jump in geopolitical uncertainty would directly and indirectly -via energy price uncertainty (oil, gas)- weigh on discretionary household spending and hiring decisions by companies, with both reactions potentially reinforcing each other. Considering that these decisions are easily reversible, the impact could be rather swift
Data on GDP, inflation, interest and exchanges rates.
Faced with the urgency of climate change, many countries have begun their ecological transition, with the war in Ukraine only accelerating the movement. After soaring in 2022, investment in “clean” energies is set to reach a new record in 2023: around USD 1,800 billion worldwide, or 1.7 points of GDP, according to estimates by the International Energy Agency (IEA). Although the search for new fossil fuels has not yet come to a halt, it is now mobilizing less capital (around USD 1,200 billion).
Economic surveys in September are sending out mixed signals. Consumer confidence is falling in most countries, which in some cases (France, Spain) underlines a slight rise in inflation. This loss of confidence is also accompanied, in general, by a decline in purchasing intentions for durable goods, which can be linked to high interest rates and an expectation of a moderate downturn on the labour market. Lower consumer demand is affecting companies' order books, with an impact that varies according to sector. In industry, economic surveys are more affected, while in services, activity remains dynamic in the US and Japan, while being more modest in Europe.
In the US and several European countries, gross public sector borrowing requirements are expected to remain sizeable and the reduction in the size of central banks’ balance sheets -quantitative tightening- complicates matters. The impact on bond yields will depend on the risk-bearing capacity of investors. Their ability and willingness to increase their exposure to duration risk depends on several factors: the existence or absence of strict duration risk limits in portfolios of institutional investors, risk aversion in reaction to recent bond yield volatility, uncertainty about the outlook for official interest rates, the correlation between bonds and equities, the balance sheet capacity of financial intermediaries
In the US, economic policy uncertainty, based on media coverage, increased slightly in September, after four months of decline. The economic policy uncertainty, based on media coverage, increased slightly after four months of decline. In the Eurozone, the European Commission’s economic uncertainty index also moved upwards in September.
The rate hikes cycle is coming to an end. The further weakening of economic activity and lower inflation that we expect to see by the end of this year should prompt the Fed, like the ECB and the BoE, to stop raising their policy rates. However, a further tightening cannot be ruled out. Interest rate hikes would not be followed immediately by cuts: to continue the fight against inflation, monetary response is expected to hold policy rates at their current high level for an extended period, until mid-2024 according to our forecasts. The first rate cuts would then occur to accompany the sharper fall in inflation and offset its positive impact on real policy rates. From this point of view, monetary policy would remain restrictive until the end of 2024.
