The flare up of geopolitical instability in Israel and Gaza has led investors to re-examine the outlook for the world economy over the past few days. The release of the IMF’s latest World Economic Outlook publication (IMF WEO October 2023) also, however, grabbed some of the financial headlines though whether its staff additionally need to now re-examine that outlook in light of this instability remains to be seen. In our charts this week we take a look at the IMF’s forecasts (chart 1) and contrast these with the October Blue Chip consensus, the forecasts from which were also released this week (chart 2). That Blue Chip survey contained twice yearly long-term projections for the US which we additionally examine (chart 3). One of the key channels via which global growth could be dislodged as a result of a war in Israel and Gaza is the oil price, which we focus on next (chart 4). We conclude this week though with some broader perspectives on global current account imbalances (chart 5) and then on how China appears to have lost its allure as a haven of foreign direct investment in recent months (chart 6).
Introducing
Andrew Cates
in:Our Authors
Andy Cates joined Haver Analytics as a Senior Economist in 2020. Andy has more than 25 years of experience forecasting the global economic outlook and in assessing the implications for policy settings and financial markets. He has held various senior positions in London in a number of Investment Banks including as Head of Developed Markets Economics at Nomura and as Chief Eurozone Economist at RBS. These followed a spell of 21 years as Senior International Economist at UBS, 5 of which were spent in Singapore. Prior to his time in financial services Andy was a UK economist at HM Treasury in London holding positions in the domestic forecasting and macroeconomic modelling units. He has a BA in Economics from the University of York and an MSc in Economics and Econometrics from the University of Southampton.
Publications by Andrew Cates
Global| Oct 06 2023Charts of the Week (Oct 6, 2023)
A further steep climb in US Treasury yields has been in the eye of the storm for financial markets over the past few days. In our charts this week we assess this trend (chart 1) and driving factors. The latter include a tighter-for-longer narrative from the Fed (chart 2), a broader global trend toward quantitative tightening (chart 3), and an oil-related lift in US (and global) inflation expectations (chart 4). We touch too on the potential role that Japan may have played in generating some financial instability in recent weeks (chart 5). We then conclude with some perspective on the implications of these trends for emerging markets (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Sep 29 2023Charts of the Week (Sep 29, 2023)
Financial markets have been roiled over the past few weeks largely thanks to a “tighter for longer” narrative from the Fed and a related - and steep - climb in US Treasury yields. That narrative has been amplified by recent comments from Fed officials, by a batch of stronger-than-expected US growth data, as well as by heightened concern that firmer oil prices could re-ignite inflationary pressures. Against that backdrop our charts this week focus on the more downbeat messages that have emerged of late from the global economic dataflow (charts 1, 2 and 3). As noted, the relative resilience of the US economy, nevertheless, has continued to surprise forecasters, and some potential reasons for this are subsequently highlighted (in charts 4 and 5). Away from these near-term cyclical matters we look at another more structurally-rooted reason for global growth concern, namely still-low levels of female labour force participation in the world economy, and in India in particular (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Sep 22 2023Charts of the Week (Sep 22, 2023)
Financial markets have been on the back foot in recent days with some oil-related inflation jitters combined with a “tighter for longer” message from the Fed a couple of contributory factors. In our first two charts this week, we made a nod to these with some colour on US Treasury yields (in chart 1) and the recent behaviour of consumer energy prices (chart 2). With this week’s UK BoE decision in mind, we next focus on the more settled nature of UK financial markets over the last few months (chart 3). Then, ahead of tomorrow’s BoJ decision, and with recent changes to its Yield Curve Control policy in mind, we offer some colour on the evolution of Japan’s JGB yields (chart 4). Subsequently we turn to emerging economy matters with some aggregate perspective on these economies’ dwindling foreign exchange reserves (chart 5). India is a noteworthy exception to this, however, one reason for which concerns its inflows of foreign direct investment which we additionally underscore (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Sep 15 2023Charts of the Week (Sep 15, 2023)
Following this week’s policy decision from the ECB, investors will likely remain focused on central banks in the coming days with the Fed, the BoJ and the BoE all due to meet next week. With that in mind, we look at some of the key considerations for these policymakers in our charts this week. To kick off we look at the impact of tighter monetary policy – and quantitative tightening policies in particular – on longer-term real yields in the United States (chart 1). We turn next to some perspectives on the global growth and inflation consensus for 2024 from our latest Blue Chip survey of economic forecasters (in charts 1 and 2). Given its significance for the world economy, China’s slowdown and the impact on its major trading partners is then given some airtime (in chart 4). For the BoE more specifically, we look next at the evidence that’s been accumulating to suggest the UK labour market is feeling some strain (chart 5). Finally, and with much discussion doing the rounds about the potential impact of a new currency for the so-called group of BRICS economies, we look at the still-high weight of the US dollar in the reserve holdings of the world’s central banks (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Sep 08 2023Charts of the Week (Sep 8, 2023)
The world economy resilience over the last few months has surprised many forecasters but the incoming data from Europe this week coupled with a further climb in the price of oil suggest that downside risks are accumulating. In our charts this week we dig into this with some perspective on the downbeat messaging from September’s sentix surveys (chart 1) and our calculations for credit impulses in the US and the euro area (chart 2). The potential for positive inflation surprises from the recent climb in the oil price is then explored in our next exhibit (chart 3). The offset to this, however, is the broader evidence of a post-pandemic re-balancing of the world economy (chart 4). Still, if the incoming growth data disappoint and inflation outcomes surprise to the upside financial markets are unlikely to react too positively (chart 5). The longer-term strength of that recovery and its dependency on productivity trends and demographic factors is then given some airtime (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Sep 01 2023Charts of the Week (Sep 1, 2023)
A trend toward higher government bond yields that had been in vogue for much of August has reversed in recent days. This can be traced to a batch of weaker-than-expected economic data and suggestions that the US labour market, in particular, is re-balancing (chart 1). Notwithstanding some softening in the US, more of the dataflow from the euro area has been firmer-than-expected in recent weeks (see chart 2). Until recently those trends, however, have failed to impress FX investors (chart 3). One reason for this arguably concerns interest rate expectations and growing evidence, in particular, from the euro area to suggest that the ECB monetary policy is now very restrictive (chart 4). Still, with this week’s European inflation data offering little comfort for those with a dovish disposition (chart 5) a pivot toward easier monetary policy from the ECB is unlikely in the period immediately ahead. Finally, how China evolves from here will remain key for the global economic outlook which is why the messages from most of its high frequency data are equally unhelpful for those with a more bullish disposition towards its economy (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Aug 24 2023Charts of the Week (Aug 24, 2023)
We are publishing this edition of Charts of the Week and our podcast a little earlier this week owing to logistical issues caused by the August holiday season.
Although the anxiety that has lately gripped financial markets has ebbed a little in the early half of this week, investors are no longer actively embracing the soft landing consensus that had previously held sway. Growing evidence of economic instability in China have certainly magnified those concerns (chart 1). But these have been further amplified by the break higher in government bond yields - and most notably in Japan’s JGB yields - over the last few weeks (chart 2). Firmer-than-expected economic data from the US may have been a contributing factor behind those moves in yields (chart 3). But lingering inflationary pressures in other major economies, such as the UK (chart 4), coupled with reticence from policymakers to pivot toward more growth-friendly policies, have also been critical for that trend as well. And since inflation and policy tensions have been key drivers of global macroeconomic and financial market instability in recent months (see charts 5 and 6), it is perhaps unsurprising that alarm bells are now ringing more loudly about the economic outlook from here.
by:Andrew Cates
|in:Economy in Brief
Global| Aug 18 2023Charts of the Week (Aug 18, 2023)
The mood in financial markets has soured over the past few days thanks to some downbeat messages from the global dataflow and most notably from China. The minutes released from the Fed’s July FOMC meeting further contributed to this negativity. These minutes specifically suggested that most officials are more concerned about inflation as opposed to growth, amplifying the prevailing investor pessimism. Our charts for this week offer additional insight. They demonstrate that the recent downturn in global equity markets has unfolded against a backdrop of unusually low volatility and highly positive investor sentiment (chart 1). Consensus forecasts for US profits had, until quite recently, also been falling at the same time as forecasts for long-term interest rates had been rising (chart 2). The economic outlook for next year for most major economies has also darkened in recent weeks according to the latest Blue Chip survey of economic forecasters (chart 3). Pessimism about the UK has, in particular, become fairly acute and has possibly now been further magnified following this week’s spate of economic data (chart 4). On a brighter note, this week’s Q2 GDP data from Japan were much stronger than forecasters had anticipated notwithstanding less favourable underlying details (chart 5). Finally, and sticking with some more upbeat news, geopolitical risks have continued to ebb in recent weeks and, according to one metric, have now returned to levels that pervaded prior to the conflict in Ukraine (chart 6).
by:Andrew Cates
|in:Economy in Brief
United Kingdom| Aug 16 2023The UK economy: Poor health
The UK economy is not in great shape. That’s the overriding message from the battery of UK economic data that have been published over the past few days.
Although last week’s data revealed that GDP grew by a stronger-than-expected pace of 0.5% in June, the UK’s post-pandemic recovery has nevertheless remained poor. The level of GDP in Q2 2023, for example, was still some 0.2 percentage points below the level in Q4 2019, just prior to the onset of the pandemic.
by:Andrew Cates
|in:Economy in Brief
Global| Aug 11 2023Charts of the Week (Aug 11, 2023)
Financial markets have continued to gravitate toward the ‘Goldilocks’ scenario where economic growth is neither “too hot” nor “too cold” and where inflation gradually moderates to more target-friendly levels. Under that scenario central banks could take their proverbial foot off the brake, and sit back and wait for a few months, before gently re-applying the accelerator. But while that view may have appeared overly optimistic a few weeks ago, much of the incoming data more recently appears to support this narrative. GDP data, for example, for most major economies suggest that a recession was averted in Q2 (see chart 1). This is despite the high odds that had been assumed by many economists and financial market participants about that scenario (chart 2). In the meantime, ebbing US labour market activity, firmer productivity growth and more benign unit labour cost pressures (chart 3) have aligned quite convincingly with the Goldilocks narrative, not least given the importance of the latter for inflation outcomes. And this has found an echo in the headline CPI inflation outcomes for June (and July) not just for the US but for other major economies as well (chart 4). Not for the first time, however, the incoming data can still be cut both ways. Much of the good news on the inflation front, for example, can be traced to the weakness of energy prices in recent months. But with oil prices having strengthened again more recently – and core inflationary pressures less benign than the headlines suggest – market-based measures of inflation expectations are now somewhat un-friendly for most central banks (chart 5). Finally – and in the other direction – latest data from China are not all friendly for soft-landing enthusiasts either as downside risks to the growth and inflation outlook have been accumulating (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Aug 04 2023Charts of the Week (Aug 4, 2023)
The downgrade of US government debt by a credit rating agency has been a big driver of this week’s financial market gyrations. The decision by the Bank of England to lift policy rates by 25bps (with hints of more to follow) coupled with firmer-than-expected private sector payrolls data (from ADP) also served as a reminder that central banks may not yet have completed their tightening cycles. In our charts this week we look at the latest views on central bank policy that emerged from August’s Blue Chip Financial Forecasts survey (chart 1). That those views remain consistent with the idea that tightening cycles are near completion is, in part, a reflection of tighter financial market conditions, which we offer some perspectives on in our next exhibit (chart 2). It is also, however, a function of inflation, and for many central banks, service sector inflation which we focus on next (in chart 3). The decline in global economic policy uncertainty that’s unfolded in recent months is the takeaway from our next exhibit (chart 4). We then contrast this with the recent weakness of demand and of pricing power in the world’s traded goods sector (in chart 5). Lastly, (in chart 6) we look at the escalation in global rice prices in recent weeks given the threats this is posing for economic, political and social stability in many emerging market economies.
by:Andrew Cates
|in:Economy in Brief
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