The world economy’s underlying vulnerabilities have been in sharp focus over the past few weeks, but more deep-seated wounds with longer-lasting scars have been avoided, at least for now. This applies specifically to the anxiety that had surfaced about the health of the US banking sector and more recently to the willingness of politicians to lift the US debt ceiling. But it applies more generally to the outlook for the world economy, partly thanks to the relief that’s been provided by weaker energy prices. Still, as most of our charts this week suggest, while deeper wounds have been avoided for now, this does not mean that underlying vulnerabilities have been erased. We illustrate, for example, the heightened tendency of incoming data for global growth to disappoint expectations to the downside (in chart 1). Inasmuch as that trend toward disappointment has been rooted in a deteriorating outlook in Europe and Asia (compared with the US) we look next at the renewed upward pressure on the US dollar (in chart 2). The downward pressure on European inflation and on bank credit growth (in Europe and the US) is our next focus (in charts 3 and 4). Then, on labour market issues, we home in on the mixed messages that were conveyed about employment activity in the US from this week’s April JOLTs report (in chart 5). And finally we turn to the worrying trend toward higher youth unemployment that’s established itself in China over the last few months (in 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| May 26 2023Charts of the Week (May 26, 2023)
Lingering concerns about US debt ceiling negotiations have left financial markets on the back foot over the past few days. But incoming economic data this week have not helped. May’s flash PMIs, for example, disappointed to the downside in Europe with the details revealing stubbornly high price pressures in the service sector. Those details found an echo in a much stronger-than-expected UK inflation print for April as well. Against this backdrop our charts this week firstly home in on market expectations for Fed policy (in chart 1). We then contrast these with the more downbeat messages for global growth that are being signalled by falling copper prices and negative global growth surprises (in chart 2). We turn next to the sobering messages from the stalling pace of GDP growth in Asia’s more developed economies (in chart 3) and one reason for this (in chart 4), namely soggier world trade growth and rising inventories. Our last two charts then return to inflation issues and examine the relatively high level of energy price inflation in the UK compared with the US and to a lesser extent the euro area (in chart 5). This is then contrasted with the firming trend for core inflation in the UK and the ebbing trend in the US and euro area (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| May 19 2023Charts of the Week (May 19, 2023)
Financial markets were a little unsettled earlier this week but heightened optimism about the willingness of US politicians to raise the US debt ceiling has calmed some fears. Incoming economic data, however, have taken a turn for the worse and there is arguably now mounting evidence to suggest that tighter monetary policy is beginning to exact a heavier toll. Against this backdrop, our charts this week look at the expectations for US monetary policy that are now implicit in the shape of the US yield curve (in chart 1). We turn next to the trend toward private sector deleveraging that’s being instigated by tighter monetary policy (in chart 2). China’s economy is our next focus (in chart 3) and the accumulating evidence to suggest that its reopening phase has failed to live up to expectations. That’s an indirect message too from the drag on Japan’s economy from net trade in Q1 that we subsequently explore (in chart 4). A slowing UK labor market and the welcome messages this is offering the Bank of England in its inflation-fighting campaign is our next focus (in chart 5). Finally, and staying with inflation issues, we explore what US companies have to say about demand pressures and profit margins and their impact on prices (in chart 6).
by:Andrew Cates
|in:Economy in Brief
United Kingdom| May 12 2023UK Growth Up Modestly in Q1
The UK economy grew by 0.1% in the three months to March 2023, matching market expectations. On a monthly basis, GDP fell by 0.3%, after showing no growth in February. The contraction in output in March was mainly driven by a weaker services sector, the output of which declined by 0.5% after a fall of 0.1% in February. In particular, output in the wholesale trade and retail sector fell by 1.4% thanks to much weaker household spending in response to rising inflation. Output in consumer-facing services fell by 0.8% in March 2023 after a rise of 0.4% in February.
In contrast, growth trends in other key component sectors such as production and construction were more upbeat. Specifically, industrial production grew by 0.7% in March which was the strongest pace of growth since May 2021. Construction sector output also grew by 0.2% in March following growth of 2.6% in February.
Despite the increase in output in Q1, GDP is still some 0.5% below its pre-pandemic level. Still, the economy has now eked out two consecutive quarters of growth, which chimes with the Bank of England’s revised view that the UK may now avoid a recession in 2023.
by:Andrew Cates
|in:Economy in Brief
Global| May 12 2023Charts of the Week (May 12, 2023)
Following a frenetic week on both the policy and data front, the macroeconomic calendar has been a little lighter over the past few days. This week’s key report, namely April’s US CPI data, more or less met market expectations while on the policy front the Bank of England matched forecasts too in hiking the Bank rate by 25bps. Otherwise the stability of the US banking sector and debt ceiling politics were a couple of themes for investors to additionally focus on. Against this backdrop, our charts this week home in on the latest Blue Chip consensus for economic growth (in chart 1) and how these contrast with recent investor surveys of the world economy (in chart 2). We then look at how the wheels of the US credit cycle are slowing down according to the latest Senior Loan Officer survey (in chart 3) and how the small company sector is responding to this via reduced expectations for inflation (in chart 4). Finally, we look at China’s reopening and the weaker momentum that’s being signalled by high frequency economic indicators (in chart 5) together with the absence of any big ripple effects from that reopening for the rest of the world (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| May 05 2023Charts of the Week (May 5, 2023)
The spotlight has been on the Fed and the ECB over the past few days with investors keen to hear some hints that an interest rate tightening cycle is close to completion. Notwithstanding further hikes of 25bps from both central banks, that certainly seemed to be a takeaway from the Fed judging by Chairman Powell’s post-meeting comments and the financial market response. Incoming economic data have been flagging downside growth risks over the past week or so and this has given cover for US policymakers to communicate a policy pause. But those growth risks combined with heightened financial stability concerns, still-high inflation, and arguably sanguine market pricing (e.g. in credit) underscore how difficult the calibration of monetary policy has become. Against this backdrop our charts this week home in on consensus forecasts for policy rates over the next 12 months (in chart 1) and the heightened US recession risks that recent surveys have been signalling (in chart 2). A more upbeat view about the US economy is, nevertheless, being signalled by this week’s labour market reports, one of which we additionally illustrate (in chart 3). As for Europe, much of this week’s data has been more damning for the economic outlook which we underscore via the ECB’s latest Q2 bank lending survey (in chart 4). On the inflation front we then focus on the disinflationary messages for traded goods prices that can be heeded from China’s latest manufacturing PMI survey (in chart 5). Finally, with oil prices falling sharply in recent days, we look at the tight relationship between global energy prices and core CPI inflation (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Apr 28 2023Charts of the Week (Apr 28, 2023)
Financial market jitters have resumed in recent days in part because of renewed concern about funding pressures in the US banking sector. Forward-looking US economic data have additionally disappointed expectations and continue to flag non-negligible risks of a recession in the period ahead. Our charts this week examine these issues with some perspective on global financial stress (in chart 1), consumer confidence (in chart 2) and US capex orders (in chart 3). We then home in on skilled labour shortages in Europe (in chart 4) before turning to the close relationship between commodity prices and emerging market inflation surprises (in chart 5). Finally, and drawing on the IMF’s latest figuring, we examine how some of the major advanced economies now stack up versus China and India in their respective shares of global GDP (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Apr 21 2023Charts of the Week (Apr 21, 2023)
Concerns in financial markets about the underlying health of the US and European banking sectors have continued to ebb in recent days leaving more familiar macro factors to re-take centre stage. The focus this week in particular has been on the Q1 US earnings season but some stronger-than-expected GDP data from China and another positive inflation surprise from the UK were also in the limelight. In our charts this week we underscore how important the incoming macroeconomic data have been for financial market outcomes in recent months (in chart 1) and the heavy role that energy prices have played in driving that data (in chart 2). With China in the news this week, we look next at the absence so far in this reopening phase of any big impulse from domestic credit growth (in chart 3). We then throw the spotlight on global food prices, and, in particular, the big divergence that’s opened up between consumer food price inflation in North America and Europe (in chart 4). The UK labour market is our next port of call and specifically the evidence this week that suggests that market is beginning to wilt, presumably under the weight of tighter monetary policy (in chart 5). Finally, and away from the ebb and flow of the macroeconomic data, we illustrate the latest update of global surface temperature anomalies from the National Oceanic and Atmospheric Administration (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Apr 14 2023Charts of the Week (Apr 14, 2023)
This week the International Monetary Fund (IMF) trimmed its global growth outlook for this year and flagged downside risks from a potential further flare up of financial instability. Lingering concerns about high inflation and tight labour markets were also emphasised, not least because a further monetary policy response might re-ignite financial market tensions. In our charts this week we pick up on these themes. We look, for example, at one of the factors that’s been driving banking sector stress and specifically the shift away from US bank deposits and into money market funds in recent months (in chart 1). We then turn to the uncomfortable trade-off between the outlook for profits and interest rates that’s recently established itself (chart 2). Next, we look at the equally uncomfortable messaging for global growth from this week’s sentix surveys of investor confidence (chart 3). More comfortable messaging is, however, now being signalled for the inflation outlook via the recent normalisation of supply chain pressures, an issue we assess next (in chart 4). And that messaging chimes too with recent data from Asia and specifically the weakness of China’s producer price inflation and South Korea’s exports (in chart 5). Finally, and in tune with some structural analysis in the IMF’s latest April Economic Outlook, we explore the links between demographics and long-term interest rates (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Apr 07 2023Charts of the Week (Apr 7, 2023)
Financial markets have remained on a more upbeat footing over the past few days as fears about the US and broader global banking sector have ebbed. The additional liquidity support that’s been offered by central banks, and the Fed in particular, coupled with heightened expectations of a pivot toward looser monetary policy are surely key reasons for this new-found optimism. Many observers, nevertheless, are questioning whether the conditions that ultimately warrant this additional policy support will be positive for growth and profitability in the period ahead. Many of our charts this week weigh in on this debate. We look, for example, at the latest Blue Chip consensus for policy rates in the major economies (in chart 1). We also contrast the degree to which phases where US bank lending standards were tightening (like now) typically chime with phases of broader financial instability (in chart 2). On macroeconomic matters we then look at the ongoing dysfunction in the US labour market via a Beveridge curve analysis of job openings and unemployment (in chart 3). We follow this in the euro area with a look at a new index of service sector activity (in chart 4) and the omens this is carrying for the region’s economic outlook. We then turn to the UK with a look at another source of downside risk, and specifically the spike in strikes and industrial stoppages that’s been weighing on the economy in recent weeks (chart 5). Finally, in Japan, we look at the indications from the latest Tankan index and, in particular, the more intense pricing pressures that this latest survey reveals (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Mar 31 2023Charts of the Week (Mar 31, 2023)
A more positive mood in financial markets has unfolded so far this week as fears about the health of the world’s banking sector have ebbed. For how long that more positive mood endures is, however, still open to much debate. That investors are still anticipating a looser path for monetary policy over the next 12 months even as many central banks have been lifting interest rates over the past two weeks certainly suggests much anxiety about the economic outlook from here (see chart 1). In our charts this week we highlight latest euro area data for monetary developments which certainly underscore growing vulnerabilities in the financial system (see chart 2). That the pace of broad money growth in advanced economies more generally has been feeble in recent months additionally highlights how restrictive the stance of policy may now be (see chart 3). The impact of this on economic activity will be hard to discern in the immediate weeks ahead but high frequency sentiment data will be some of the key indicators to watch. It was, therefore, notable that this week’s Conference Board data from the US suggest that consumer confidence has held up well, at least so far (see chart 4). A relatively upbeat message is also being signalled about the US (and Switzerland) by the OECD’s high frequency indicators of economic activity (in chart 5). Finally - from a more structurally-rooted perspective - we illustrate this week the great strides that India has made in its technological development in recent years via some data for internet penetration (in chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Mar 24 2023Charts of the Week (Mar 24, 2023)
Financial market sentiment has improved over the last few days thanks to reassuring communications and targeted policy support from central banks together with a high profile acquisition of a troubled institution in the Swiss banking sector. Although the Fed has subsequently enacted a 25bps rate hike, Chairman Powell has further assuaged market fears by suggesting the US tightening cycle is nearly complete. Against that backdrop our first three charts this week dwell on financial instability and how this can be traced, in part, to central banks’ tightening campaigns. The trade-offs for policymakers, however, are now far more challenging, not least as inflation is proving to be far more sticky in some major economies (e.g. the UK) than expected (see chart 4). In the meantime, there remains little evidence yet of a revival in the world economy, notwithstanding the pick-up that might have been expected in some areas by now from China’s re-opening (see charts 5 and 6).
by:Andrew Cates
|in:Economy in Brief
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