Macro Radar

Taking the pulse of economic activity

The US employment market recently delivered a new warning sign of a forthcoming recession, but it is questionable whether it will already take hold this year. There are much clearer adverse signals emanating from the manufacturing sector in Europe, where Germany looks set to stay in negative growth territory this summer.

Different growth speeds

The USA and Europe are growing at different speeds (again) this year. Economic activity in the United States for the first half of 2023 held up better than expected. More and more economists are now pushing their forecasts of the dreaded recession ever farther into the future and, like us, don’t expect the downturn to occur until next year. However, economic indicators remain contradictory. The US housing market has stabilized lately and investment spending is picking up thanks to the Inflation Reduction Act and the CHIPS Act, but the labor market has recently been flashing warning signs: initial unemployment insurance claims are up more than 10% compared to the prior quarter – over the last 50 years, this has consistently heralded a recession.

Stark sentiment divide

Growth in the Eurozone, meanwhile, is already in a lower gear, particularly in Germany. After the country initially had appeared to get through winter better than expected, Germany’s Federal Statistical Office significantly lowered the GDP growth figures for Q4 2022 and Q1 2023. The business activity and sentiment surveys published in June now portend an even longer dry spell. The manufacturing purchasing managers’ index and the Ifo index both fell significantly and came in lower than expected. At the same time, Germany’s heretofore resilient services sector has also been showing signs of weakness lately as falling real wages and the German government’s somewhat chaotically orchestrated green transition have pummeled consumer confidence.

Rate-hiking cycle almost over

Major central banks around the world jacked their policy rates higher again in June. Stuttering economic activity (in some places) and very evidently receding inflation rates won’t make central bankers’ work easier in the months ahead, nor will they make it easier to communicate monetary policy. In view of this challenge, most central banks are making the future interest-rate path contingent on upcoming macroeconomic data –forward guidance has outlived its usefulness. On the basis of the current data, the Swiss National Bank, the European Central Bank, and the Bank of England look set to tighten the interest-rate screw at least one more time. The US Federal Reserve likewise sees an even higher policy rate in its latest projections, but the Fed is the central bank closest to the end of the rate-hiking cycle.

Kaiser Partner Privatbank interest rates view

The real estate market, which has transformed in recent years from a proverbial golden goose to the Achilles’ heel of Chinese economic activity, is one of the main reasons why China’s policymakers are keeping a foot on the growth brake.