Sorry, no search results could be found.
13 Jun 2023 | 5 minutes to read
Revised data revealed that the Eurozone did enter recession in the first quarter. The first print of Q1 2023’s GDP growth indicated a +0.1% quarter-on-quarter rate, but the revision showed the economy to have contracted by -0.1%, following a -0.1% contraction in Q4 2022. While the decline is small, this means the Eurozone is technically in recession. Within the data, weaker household consumption was a key driver of the weakness, declining by -0.3% quarter-on-quarter, though this was smaller than the -1% decline seen in Q4. Government consumption was also weak. However, aggregate data obscures the divergence in growth rates within the Eurozone. Ireland’s -4.6% quarterly decline has weighed on the print, along with weaker growth in Germany and Eastern Europe. In contrast, Europe’s southern and western states fared better. Given that the European Central Bank began tightening later than the US Federal Reserve and the UK’s Bank of England, the impact of tighter monetary policy has likely yet to be fully felt, and growth is likely to remain weak in coming quarters.
Chinese trade data continues to point to weak external demand, though there are signs of domestic activity picking up. Exports declined by -7.5% year-on-year in May, despite a weak backdrop in May 2022. This compares to an 8.5% increase in April. Weak export demand likely reflects weak economic growth globally, as well as the reversal of the surge in goods demand that occurred during and after the pandemic. This has resulted in firms beginning to unwind excess inventories. In contrast to the weak export data, imports did show signs of picking up, with a year-on-year decline of -4.5%, compared to a -7.9% decline in April. This suggests that domestic activity may be strengthening, and could even signal that exports may also improve in time.
The Organisation of Petroleum Exporting Countries and their allies (OPEC+) agreed a surprise cut to output last week. The oil price ended last week down -13% year-to-date, as tightness in supply has been less pronounced than expected. While some members face production constraints due to underinvestment, other nations, such as the United Arab Emirates, have been seeking higher quotas, which were successfully negotiated at the meeting. Saudi Arabia, the member with the greater output capacity, surprised markets by announcing a cut to production during the press conference, calling it a “Saudi lollipop”, likely designed to ease negotiations within the cartel. Saudi Arabia will cut July output by 10%, to 9 million barrels per day, with an extension possible. OPEC+ members also extended already agreed cuts to 2024, and lowered the total 2024 production target. Greater discipline within the cartel, which pumps 40% of global crude oil, has supported prices, a trend which is expected to continue.
UK property survey data showed signs of revival in June, according to the Royal Institute of Chartered Surveyors. While house prices continue to fall, downward momentum shows signs of slowing and new buyer enquiries and agreed sales had the least negative reading in the last year. New instructions moved into positive territory for the first time since 2022. However, this bounce may be short lived, as the housing market may face renewed pressure. Because a higher share of mortgages are now fixed rate, the impact on household disposable income has been more gradual, and is likely to be more pronounced this year when a higher proportion of mortgage deals end. In addition, Bank Rate is now expected to rise somewhat further to c. 5.5%, increasing the likely change in the effective mortgage interest rate (the UK’s average mortgage rate), which the Bank of England estimates to be 2.7%.
The Organisation for Economic Cooperation and Development (OECD) revealed new forecasts for growth in 2023 and 2024, anticipating soft growth. Global GDP growth is expected to be 2.7% in 2023 and 2.9% in 2024. This is higher than city economists’ forecasts of 2.6% in 2023 and 2.7% in 2024, but behind the pre-pandemic average growth rate of 3.7%. The OECD’s new Chief Economist also warmed governments to rebuild fiscal buffers, with many governments increasing spending dramatically during the pandemic and in response to greater political hostility in Europe.
Important information
The information contained in this article is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This article is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are provided, Close Brothers Asset Management accepts no responsibility for the content of such websites nor the services, products or items offered through such websites.
Before you invest, make sure you feel comfortable with the level of risk you take. Investments aim to grow your money, but they might lose it too.