In Chile, a large majority of voters (nearly 62%, with an exceptional voter turnout) rejected the draft new constitution in the referendum held on 4 September. The draft, which contains almost 400 articles, did not propose a profound reform of the Chilean economic model; the Central Bank had to remain independent, while property and labour rights were not called into question. But it guaranteed better access for the population to a set of social rights (housing, education and access to healthcare), whereas the State currently only pays for those needs not covered by the private sector. This meant a substantial and long-term increase in public spending
Recent economic data paint a picture of increasing concerns about the economic outlook. In the US, high inflation and rising interest rates play a key role. In the euro area, the same factors play a role -although interest rates are still below those in the US- but skyrocketing energy prices and gas supply disruption are additional forces that should drag down growth. Easing price pressures in business surveys are a hopeful development but selling price expectations remain nevertheless exceptionally high given the weakening of order books. This could point to input price pressures that force businesses to charge higher prices to protect their margins. It is to be feared that slowing demand will make this increasingly difficult, forcing companies to cut back on investments and new hirings
US economic policy uncertainty based on media coverage has increased slightly recently, reflecting the hawkish tone of the Federal Reserve and hence concern about the extent and the impact of additional monetary tightening. In the US, business uncertainty about sales revenue growth has declined slightly as of late after a rising trend lasting several months.
The US labour market continues to perform well. The unemployment rate stood at 3.7% in August, up slightly from 3.5% in the previous month. Total nonfarm payroll employment growth is slowing down but remains significant (+315k m/m), particularly in professional and business services, health care, and retail trade. The labour market’s resilience to the slowdown in growth is an important element in mitigating the impact of the rising cost-of-living.
Over the next five years, French economic policy will have to continue to deal with structural issues, such as full employment, the delay of companies in terms of robotisation, the competitiveness of companies and the place of industry. It will most likely also continue to focus, at least in the short term, on supporting household purchasing power, as it has done since 2019. These projects, which will have to be carried out in parallel, will have to be reconciled with the cost of the ecological and energy transition against the background of public debt that has already risen sharply and interest rates that are moving higher, albeit in a controlled way.
The IMF and the Government of Pakistan have reached an agreement to complete the combined 7th and 8th reviews of Pakistan’s Extended Fund Facility which has been interrupted since March. If the IMF Executive Board approves the deal in the coming weeks, Pakistan will receive the equivalent of almost USD 1.2 billion. An extension of the support programme from September 2022 to June 2023 could allow the country to receive an additional SDR 720 million (i.e. approximately USD 947 million). Although this agreement will partially and temporarily ease pressure on the country’s external accounts, the risk of a balance-of-payments crisis remains high. The high pressures on the Pakistani rupee have not eased
The economy of Algeria was already in a precarious position in 2020 when it had to cope with the double shock of the Covid-19 pandemic and lower hydrocarbon prices. Since then, the situation has improved thanks to the rise in global oil prices and strong demand for gas in Europe. For the first time since 2014, the country should be able to post current account surpluses in 2022-2023, and then accumulate FX reserves. The risk of a balance of payments crisis in the short term is receding. But macroeconomic stability remains fragile as prospects for recovery are modest and public finances are structurally in deficit. The implementation of reforms is a priority to prevent economic troubles in the event of a new oil shock.
Chinese economic activity contracted by 2.6% quarter-on-quarter in Q2 2022, with almost zero growth (0.4%) year-on-year. This poor performance was primarily the result of mobility restrictions introduced in several of the country’s provinces in response to the latest wave of the Covid19 pandemic, with the strictest restrictions in force from March to May in major economic centres such as Shanghai. The economic shock in Q2 2022 was severe and unexpected, but was nevertheless less violent than that in Q1 2020, when the lockdown measures introduced at the beginning of the crisis resulted in a collapse in activity of 10.3% q/q and 6.9% y/y.
The three-month moving average growth for the UK was 0.4% in May (3.5% y/y), above the expectations (0%). The Office for National Statistics (ONS) provides a detailed analysis of monthly changes in economic activity. After contractions in March and April, GDP returned to growth in May (+0.5% m/m). This growth was driven by the three main sectors: services , production and construction.
Recent data send conflicting signals about the outlook for the US economy. A survey of chief financial officers shows they have become gloomier and the nowcast of the Federal Reserve Bank of Atlanta is forecasting a contraction of real GDP in the second quarter. This would mean two successive quarters of negative GDP growth, which corresponds to the popular definition of a recession. However, the labour market continues to be strong and the majority of indicators used by the NBER Business Cycle Dating Committee are still in an uptrend. This suggests there is no imminent risk of recession yet.
The downward trend of the global manufacturing PMI continued in June. The index dropped in the US and declined in the euro area to respectively 52.7 and 52.1, which brings us close to the crucial 50 mark. The various euro area countries for which data are available all recorded lower numbers. Data were also weaker in the UK and Japan. Australia, Mexico and, in particular, China saw an improvement.
Results from the various economic activity indexes and confidence surveys are all pointing in the same direction. The US economic slowdown is becoming more severe, particularly judging by the sharp fall in the flash composite PMI for June, which came in at 51.2, down 2.4 points relative to May. Consumer surveys are continuing to show a sharp drop in confidence. The University of Michigan Consumer Sentiment Index slumped 9.5 points in June, taking the total decline since January to 17 points, while the Conference Board Consumer Confidence Index – which had previously been more resilient – finally gave way, falling 3.5 points.
In May 2022, Germany recorded its first trade deficit since 1991. Due to a much bigger than expected increase in imports (2.7% m/m) and an unexpected drop in exports (-0.5% m/m), the country’s trade balance was negative to the tune of EUR 1 billion. By comparison, Germany was running a monthly trade surplus of nearly EUR 20 billion at the end of 2019. Moreover, this deterioration of the trade balance is likely to continue.
Although real GDP held up in Q1 (+0.1% q/q), our barometer clearly shows that the economic outlook is worsening. Annual inflation rose again in June, going from 7.3% to 8.5%, while manufacturing output stagnated: although Italy’s manufacturing PMI remained in the expansion zone at 50.9 in June, it fell for the seventh straight month and has been down 11.9 points over that period.
Emerging countries have recently faced a series of unexpected and severe shocks that will significantly dampen their economic performance in 2022. Global inflation has increased due to rising commodity prices and world supply disruptions resulting from the conflict in Ukraine. The lockdowns in China’s industrial regions during the spring have aggravated supply problems and further worsened the global economic outlook. Moreover, monetary policies have tightened in most countries, while external financing conditions have also deteriorated due to the weakening in global investor sentiment and US monetary policy tightening. Emerging markets have already faced a bout of large capital outflows since the beginning of the year
Economic activity contracted in April and May 2022 as a result of severe mobility restrictions imposed in industrial regions such as Shanghai. Since late May, these restrictions have been gradually lifted, and activity has begun to bounce back. However, downside risks to economic growth remain high. The authorities therefore continue to ease their policy mix cautiously. On the fiscal front, support measures remain focused on infrastructure projects and aid to enterprises. On the monetary front, interest rates have been cut since the beginning of the year, and targeted lending programmes have been extended. However, the effectiveness of the central bank’s action is reduced by the weak demand for credit
At the end of the 2021/2022 fiscal year, India’s real GDP exceeded its pre-crisis level, and economic activity indicators were positive in April and May 2022. Activity has been supported by a recovery in domestic demand and dynamic exports. Faced with rising inflation and downward pressure on the rupee (due to capital outflows and a widening trade deficit), the monetary authorities raised their policy rates in May and June – further increases are expected. Conversely, fiscal policy is more expansionary than anticipated. Multilateral institutions and India’s Central Bank have revised their growth forecasts downwards (between 6.9% and 7.5% for the 2022/2023 fiscal year vs. 8.7% in the previous year)
Korea’s solid macroeconomic fundamentals have made it one of the countries that has best withstood the COVID-19 pandemic. Economic growth prospects remain relatively positive. The new government, in office since May, spelled out its intention to continue the reforms begun during the previous administration, and, in particular, aims to increase research and development expenditure. Household debt rose rapidly in 2021 and is high, but the macro-prudential measures put in place by the authorities seem to be bearing fruit: the rise in debt has slowed and financial stability risks are contained.
The Taiwanese economy has been very resilient to the multiple external shocks of the past two years. The export sector has benefited greatly from the rise in global demand for high-tech goods. In addition, domestic demand has benefited from fiscal support and an accommodative monetary policy. In 2022, economic growth is constrained by many factors (the wave of Omicron in the spring, supply disruptions linked to the chaotic situation in China, rising inflation and monetary policy tightening, and a less favourable international environment). The economic growth slowdown may lead only to a limited deterioration in the quality of bank loans. Nevertheless, the real estate sector, after a sharp rise in prices since 2019, could see a correction.
The economic situation in Turkey offers striking contrasts between (i) sustained growth until Q1 2022 and stubbornly huge inflation, (ii) much greater confidence among companies than among households, (iii) a primary budget surplus and a deteriorating current account deficit due to the surge in the price of energy, and (iv) domestic borrowing conditions for the State at an unprecedented negative real rate despite massive outflows from portfolio investments. Economic policy still combines a deliberately accommodative monetary policy and a competitive exchange rate to stimulate investment, exports and import substitution
Economic growth remained very dynamic until the first quarter of this year. Strong wages growth and significant government measures to back up purchasing power over this period have supported consumer spending. Inflation rose sharply in recent months but remained lower compared to other Central European countries, due to a price cap on certain food and energy related goods. Economic growth is expected to slow down significantly in 2023, owing to the deterioration in the international environment, monetary and fiscal tightening from H2 2022. The temporary suspension of European funds presents a serious challenge given that budget and current account deficits have increased and external liquidity has eroded.
The last two quarters have been marked by slower growth in economic activity. This is mainly attributed to weaker levels of consumer spending. Furthermore, the country is still very exposed to supply chain disruptions in the automotive sector to a great extent, which adversely impacts both industrial activity and exports. The expected slowdown in the global economy in 2022 will also affect growth given the country’s high exposure to trade. Inflation has probably not yet peaked, which means that monetary tightening is likely to continue in the short term.
Economic activity held up well in the first half of the year, but a slowdown in GDP growth is coming and expected to intensify over the second semester. The recovery of the labour market continues. However, the retreat of unemployment has come at the cost of a temporary drop in productivity. Inflation, which has registered double digits growth over the past nine months, is spreading more widely throughout the economy. Looking forward, monetary policy could be increasingly constrained by the announcement of new fiscal support. The latter coupled with the continued weakening of the main fiscal rule could weigh on risk premia and inflation expectations. The enthusiasm that prevailed earlier in the year for Brazilian assets is losing steam.
Peruvian GDP returned to its pre-crisis level thanks to the strong upturn in activity recorded in 2021. However, the country’s capacity to rebound further is limited and short-to-medium-term growth prospects are moderate. Firstly, inflation pressures are weighing on private consumption and disruptions in the value chains are hampering the export sector. Secondly, the continuing political crisis is dampening the investment outlook. In addition, public finances have deteriorated over the past two years. It is not so much the level of debt, which is still moderate, but its composition which is worrying and is making the country more vulnerable to changes in investor sentiment.
The economic recovery should be sustained in 2022 due to the sharp increase in hydrocarbon production following the OPEC+ agreements and due to stronger growth in household consumption. The current oil trend is favourable to public finances, while the process of fiscal consolidation and revenue diversification is expected to continue. It has already led to a significant reduction in the fiscal breakeven oil price and therefore less exposure to oil market volatility. In the meantime, tensions have emerged on the interbank market and have required an injection of liquidity by the central bank
