Last year markets had a terrible time. So far 2023 looks different. Many indices, including the Euro Stoxx 600, Hong Kong’s Hang Seng and a broad measure of emerging-market share prices, have seen their best start to the year in decades. America’s s&p 500 is up by 5%. Since reaching its peak in October, the trade-weighted value of the dollar has fallen by 7%, a sign that fear about the global economy is ebbing. Even bitcoin has had a good year. Not long ago it felt as though a global recession was nailed on. Now optimism is re-emerging.
“Hello lower gas prices, bye-bye recession,” cheered analysts at JPMorgan Chase, a bank, on January 18th, in a report on the euro zone. Nomura, a bank, has revised its forecast of Britain’s forthcoming recession “to something less pernicious [than] what we originally expected”. Citigroup, another bank, said that “the probability of a full-blown global recession, in which growth in many countries turns down in tandem, is now roughly 30% [in contrast with] the 50% assessment that we maintained through the second half of last year.” These are crumbs: the world economy is weaker than at any point since the lockdowns of 2020. But investors will eat anything.
Forecasters are in part responding to real-time economic data. Despite talk of a global recession since at least last February, when Russia invaded Ukraine, these data have held up better than expected. Consider a weekly estimate of gdp from the oecd, a group of mostly rich countries which account for about 60% of global output. It is hardly booming, but in mid-January few countries were struggling (see chart 1). Widely watched “purchasing-manager index” measures of global output rose slightly in January, consistent with gdp growth of about 2%.
Official numbers remain a mixed bag. Recent figures on American retail sales came in below expectations. Meanwhile, in Japan machinery orders were far weaker than forecast. Yet after reaching an all-time low in the summer, consumer confidence across the oecd has risen. Officials are due to publish their first estimate of America’s gdp growth in the fourth quarter of 2022 on January 26th. Most economists are expecting a decent number, though pandemic disruptions mean these figures will be less reliable than normal.
Labour markets seem to be holding up, too. In some rich countries, including Austria and Denmark, joblessness is rising—a tell-tale sign that a recession is looming. Barely a day goes by without an announcement from another big technology firm that it is letting people go. Yet tech accounts for a small share of overall jobs, and in most countries unemployment remains low. Happily, employers across the oecd are expressing their falling demand for labour largely by withdrawing job adverts, rather than sacking people. We estimate that, since reaching an all-time high of more than 30m early last year, unfilled vacancies have fallen by about 10%. The number of people actually in a job has fallen by less than 1% from its peak.
Investors pay attention to labour markets, but what they really care about right now is inflation. It is too soon to know if the threat has passed. In the rich world “core” inflation, a measure of underlying pressure, is still 5-6% year on year, far higher than central banks would like. The problem, though, is no longer getting worse. In America core inflation is dropping, as is the share of small firms which plan to raise prices. Another data set, from researchers at the Federal Reserve Bank of Cleveland, Morning Consult, a data firm, and Raphael Schoenle of Brandeis University, is a cross-country gauge of public inflation expectations. It also seems to be falling (see chart 2).
Two factors explain why the global economy is holding up: energy prices and private-sector finances. Last year the cost of fuel in the rich world rose by well over 20%—and by 60% or more in parts of Europe. Economists expected prices to remain high in 2023, crushing energy-intensive sectors such as heavy industry. On both counts they were wrong. Helped by unseasonably warm weather, companies have proven unexpectedly flexible when it comes to dealing with high costs. In November German industrial gas consumption was 27% lower than normal, yet industrial production was only 0.5% down on the year before. And over the Christmas period European natural-gas prices have fallen by half to levels last seen before Russia invaded Ukraine (see chart 3).
The strength of private-sector finances has also made a difference. Our best guess is that families in the g7 are still sitting on “excess” savings—ie, those above and beyond what you would expect them to have accumulated in normal times—of around $3trn (or about 10% of annual consumer spending), accumulated via a combination of pandemic stimulus and lower outlays in 2020-21. As a result their spending today is resilient. They can weather higher prices and a higher cost of credit. Businesses, meanwhile, are still sitting on large cash piles. And few face large debt repayments right now: $600bn of dollar-denominated corporate debt will mature this year, compared with $900bn due in 2025.
Can the data continue to beat expectations? There is some evidence, including in a recent paper by Goldman Sachs, a bank, that the heaviest drag on economic growth from tighter monetary policy occurs after about nine months. Global financial conditions started seriously tightening about nine months ago. If the theory holds, then before long the economy might be on surer footing again, even as higher rates start to eat away at inflation. China is another reason to be optimistic. Although the withdrawal of domestic covid-19 restrictions slowed the economy in December, as people hid from the virus, abandoning “zero-covid” will ultimately raise demand for goods and services globally. Forecasters also expect the warm weather in much of Europe to continue.
The pessimistic case, however, remains strong. Central banks have a long way to go before they can be sure inflation is under control, especially with China’s reopening pushing up commodity prices. In addition, an economy on the cusp of recession is unpredictable. Once people start losing their jobs, and cutting back on spending, predicting the depths of a downturn becomes impossible. And a crucial lesson from recent years is that if something can go wrong, it often does. But it is nice to have a glimmer of hope all the same. ■
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
