Global growth is showing signs of slowdown as mixed economic data is being reported from the US and China. While the US labour market is beginning to show the impact of elevated rates, in China, recovery is losing momentum as is visible from official PMI readings. Even in Europe, the manufacturing sector continues to suffer at the hands of weak global demand.
Further, cracks that had appeared in the global financial system (due to SVB, Credit Suisse) will also put pressure on global central banks to slow down/stop their tightening cycle. There is now a greater chance of the Fed hitting a pause button from its next policy meeting in view of the flattering labour market. Even BoE is likely to pause soon, while RBA has already put a stop to its rate hike spree.
On the positive side, inflationary pressures have begun to cool off, leaving consumers with a higher purchasing power, which in turn may support domestic demand. The housing sector is also seeing a revival in US and China.
Economic activity is showing signs of a slowdown in the US (manufacturing PMI, job openings, factory orders, retail sales), while it seems to be improving in China, albeit at a slower pace (industrial productions, real estate, FAI, retail sales).
In Eurozone, while the manufacturing sector still reels under the pressure of weakness in export demand, services activity is seen picking up pace. A sharp drop in energy prices in Europe has led to a decline in headline CPI and left consumers with higher purchasing power.
Stickiness in core inflation is still worrisome and can dent consumer demand. However, the economic outlook is not as bleak as earlier anticipated and both Germany and UK expect to avoid a recession this year.
Following the financial sector shocks, US macro data is pointing towards a slowdown in the economy. In Eurozone (EZ), economic activity is showing signs of improvement, with the composite output index up at 53.7 in Mar’23 (highest since May’22) versus 52.0 in Feb’23.
Services activity was seen picking up across major EU economies (Germany and France) on the back of a revival in consumer demand and new export business. On another hand, the stress in the manufacturing sector was also broad-based owing to dip in new orders, mainly export business. On the inflation front, significant easing was witnessed as headline CPI index eased to 6.9% in Mar’23 from 8.5% in Feb’23.
In the case of China, the reopening of the economy showed mixed results. The official manufacturing PMI, after reaching a decade high of 52.6 in Feb’23, eased to 51.9 in Mar’23 owing to volatile global financial conditions.
(By Sonal Badhan, Economist, Bank of Baroda)
