Major Economies See Slower Growth, Slowing but Still High Inflation
Among the most notable news on global growth this week was the latest data from China. The official manufacturing and service sector PMIs both rose more than expected in February, a development that has prompted us to upgrade our forecast for Chinese economic growth, as we discuss in more detail in the Topic of the Week.
Elsewhere, however, this week's news largely consisted of slower growth late in 2022 for many of the major developed economies. Canada's Q4 GDP was a significant downside surprise, with the flat quarterly outcome below the consensus forecast for moderate growth during the quarter. The details were only modestly better—consumer spending rose at a 2.0% quarter-over-quarter annualized pace but business investment fell at a 5.3% pace, contributing to overall final domestic demand growing at a moderate 1.0% pace. The report also revealed a 3.0% quarter-over-quarter (not annualized) increase in household disposable income; although with that increase reflecting higher government benefits and some one-off transfers, it is perhaps not as favorable as it might appear at first glance. Finally, with respect to the monthly contours of economic growth, December GDP fell 0.1% month-over-month, though Statistics Canada's early estimate is that January GDP rose 0.3%. Overall, we see nothing in these figures that would suggest a resumption in policy rate hikes from the Bank of Canada.
Australia's economic growth at the end of 2022 was also a modest downside surprise. Australia's Q4 GDP rose 0.5% quarter-over-quarter, below the consensus forecast for a 0.8% increase. Consumer spending rose moderately by 0.3%, while private investment fell 1.7%, contributing to a flat quarterly outcome for final domestic demand. Given the improving outlook for China's economy, we believe the soft patch for Australian growth will prove temporary. Thus even with Australia's January CPI also slowing to 7.4% year-over-year, we fully expect the Reserve Bank of Australia to again raise its policy interest rate at its monetary policy meeting next week.
The theme of softer-than-expected growth was also prominent in Europe. Switzerland's Q4 GDP was unchanged for the quarter, slightly below the 0.1% quarter-over-quarter gain forecast by the consensus. Consumer spending and investment spending both rose in the quarter but were offset by a fall in exports. Swiss indicators for early 2023 are mixed, with the February KOF leading indicator rising to 100.0, but the manufacturing PMI unexpectedly easing to 48.9. Finally, Sweden's Q4 GDP rose 0.5% quarter-over-quarter, broadly as expected, and by 0.2% year-over-year.
On the inflation front, the most significant news internationally this week was from the Eurozone, with the February CPI surprising to the upside. Headline inflation eased only slightly to 8.5% year-over-year, while core inflation quickened further to 5.6%, the fastest pace of record. Services inflation quickened to 4.8%, which was also the fastest pace on record. The firm inflation readings were relatively broadbased not only across categories but also across countries. Looking at national-level data for February, this week also had upside (harmonized) CPI surprises for Germany (9.3% year-over-year), France (7.2%), Spain (6.1%) and Italy (9.9%). The firm February inflation reading, in our view, clinches the case for a 50 bps rate increase from the European Central Bank (ECB) at its March monetary policy meeting, a move that had already been very clearly signaled by the ECB at its most recent policy announcement. It also suggests upside risk to our current base case forecast for 25 bps increase at the ECB's May meeting.
This Week's State Of The Economy - What Is Ahead? - 12 February 2021
Wells Fargo Economics & Financial Report / Feb 19, 2021
Market attention was concentrated on the January consumer price data, as inflation has come back into focus.
This Week's State Of The Economy - What Is Ahead? - 09 December 2022
Wells Fargo Economics & Financial Report / Dec 15, 2022
Various price metrics released this week showed some continued signs of inflation cooling, but gradually rather than rapidly.
This Week's State Of The Economy - What Is Ahead? - 11 June 2021
Wells Fargo Economics & Financial Report / Jun 26, 2021
Okay, so I’ve gotten about half a dozen calls since Wednesday asking if I saw the May CPI numbers that came out this week.
This Week's State Of The Economy - What Is Ahead? - 24 September 2021
Wells Fargo Economics & Financial Report / Oct 10, 2021
While fears of an Evergrande default in China were rattling financial markets, for those of us in Southeast Texas who have survived the typically very hot months of July, August and September, this week brought the very welcome first early fall-like
This Week's State Of The Economy - What Is Ahead? - 24 February 2023
Wells Fargo Economics & Financial Report / Feb 28, 2023
Existing home sales declined 0.7% in January, while new home sales leaped 7.2%. Real personal spending shot higher in January, and solid growth in discretionary spending suggests continued consumer resilience.
This Week's State Of The Economy - What Is Ahead? - 30 July 2021
Wells Fargo Economics & Financial Report / Aug 11, 2021
Despite a few misses on the headline numbers, economic data this week highlighted a theme of demand continuing to outstrip supply and ongoing slack in the labor market.
This Week's State Of The Economy - What Is Ahead? - 17 September 2021
Wells Fargo Economics & Financial Report / Sep 23, 2021
While we were picking up tree limbs from the yard, data released this week generally showed a stronger economy in August than many expected in the wake of surging COVID cases.
This Week's State Of The Economy - What Is Ahead? - 23 April 2021
Wells Fargo Economics & Financial Report / Apr 26, 2021
This week\'s lighter economic calendar allowed forecasters more time to assess the implications from the prior week\'s blowout retail sales report.
This Week's State Of The Economy - What Is Ahead? - 02 July 2020
Wells Fargo Economics & Financial Report / Jul 04, 2020
It was a mildly busy week for foreign economic data and events, while global COVID-19 cases continued to rise.
This Week's State Of The Economy - What Is Ahead? - 22 January 2021
Wells Fargo Economics & Financial Report / Jan 23, 2021
Housing starts jumped 5.8% during December. Single-family starts soared 12%, while multifamily starts dropped 13.6%.
