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? - 11 September 2020
Wells Fargo Economics & Financial Report / Sep 14, 2020
In the holiday-shortened week, analysts’ attention remained on the progress of the labor market. Recent jobless claims data remain stubbornly high and point to a slowing jobs rebound.
This Week's State Of The Economy - What Is Ahead? - 16 July 2021
Wells Fargo Economics & Financial Report / Jul 30, 2021
Visiting from Texas, it felt more like fall, which like the Texas cold-snap last February just goes to show that it’s a case of what you’re used to.
This Week's State Of The Economy - What Is Ahead? - 24 March 2023
Wells Fargo Economics & Financial Report / Mar 29, 2023
The FOMC hiked the federal funds rate by 25 bps on Wednesday amid continued strength in the labor market and elevated inflation.
November 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Nov 12, 2020
U.S. gross domestic product (GDP) grew 7.4 percent, or $1.3 trillion in Q3, adjusted for inflation.
This Week's State Of The Economy - What Is Ahead? - 31 March 2023
Wells Fargo Economics & Financial Report / Apr 08, 2023
This week brought glimpses of market stabilization after weeks of turmoil. Although consumers seem unfazed by the uproar, tighter credit conditions coming down the pipeline will likely weigh on growth.
This Week's State Of The Economy - What Is Ahead? - 01 July 2022
Wells Fargo Economics & Financial Report / Jul 14, 2022
As with the Mets and Yankees when they ran into the Astros over the last couple days, consumers staying power is showing signs of running out as inflation persists and confidence moves sharply lower.
This Week's State Of The Economy - What Is Ahead? - 10 April 2020
Wells Fargo Economics & Financial Report / Apr 11, 2020
The Federal Reserve greatly expanded the collateral that it is willing to buy, further easing pressures in financial markets.
This Week's State Of The Economy - What Is Ahead? - 08 May 2020
Wells Fargo Economics & Financial Report / May 15, 2020
April nonfarm payrolls confirmed what we already knew—the labor market is collapsing. By the survey week of April 12, net employment had fallen by 20,500,000 jobs.
This Week's State Of The Economy - What Is Ahead? - 07 April 2023
Wells Fargo Economics & Financial Report / Apr 10, 2023
Employers added jobs at the slowest pace since 2020 in March, job openings fell and an upward trend in initial jobless claims has emerged.
This Week's State Of The Economy - What Is Ahead? - 28 February 2020
Wells Fargo Economics & Financial Report / Feb 29, 2020
The COVID-19 coronavirus hammered financial markets this week and rapidly raised the perceived likelihood and magnitude of additional Fed accommodation.
