US and German GDP show consumers are central to recovery
1. Revised US and German growth data shows consumers hold key to recovery
The US economy grew more than previously reported in the first quarter thanks to stronger consumer spending, while revised estimates from Germany show lower household spending tipped Europe’s largest economy into recession.
The US Department of Commerce now estimates that GDP grew by 1.3% in the first quarter, up from its initial estimate of 1.1%. Consumer spending growth increased to 3.8%, from 3.7% in the advance estimate. Spending from federal and local government also rose more than originally anticipated.
Meanwhile, German GDP fell by 0.3% for the quarter, according to revised numbers, down from an initial report of stagnation. This follows a decline of 0.5% in the fourth quarter of 2022, meaning the country is in recession.
“Under the weight of immense inflation, the German consumer has fallen to his knees, dragging the entire economy down with him,” says Andreas Scheuerle, an analyst at DekaBank in Frankfurt.
The global economy has been on a rocky recovery path since an initial post-pandemic bounce, as the war in Ukraine and an energy price shock have curtailed household and business spending.
That said, there are some green shoots. Advance indicators such as Purchasing Managers’ Indices for major economies show business activity has picked up in the second quarter.
2. US debt ceiling deal moves closer
A deal to increase the US government’s $31.4 trillion debt ceiling for two years appears to be getting closer, following talks between President Joe Biden and top congressional Republican Kevin McCarthy.
The agreement would impose limits on spending in many areas, a US official told Reuters. There are likely to be increases in funding for discretionary spending on military and veterans, and no changes in non-defence discretionary spending, the official said.
The deal is also likely to specify how much the government can spend on discretionary programmes such as housing and education, according to a person familiar with the talks. However, it would not dictate spending on individual categories within these areas.
It is not clear how long Congress has left to finalize a deal. A date of 1 June was flagged to the Treasury as the point when it could become unable to cover all of its debt obligations. But it said on 25 May that it would sell $119 billion of debt that will come due on that date, suggesting 1 June may not be an impassable deadline.
3. News in brief: Stories on the economy from around the world
A drop in global goods demand has led to a sharp slide in the production of shipping containers, The Financial Times reports. Production of standard-sized containers fell 71% between the first quarter of 2022 and the same period this year, according to figures from maritime research consultancy Drewry.
Britain is no longer expected to enter a recession this year, the International Monetary Fund (IMF) says. Government moves to stabilize the economy and fight inflation mean GDP now looks likely to grow by 0.4% in 2023, the IMF says, rather than contract by the 0.3% it forecast in April.
Tokyo’s core consumer inflation rate slowed in May, but an index that removes fuel hit a four-decade high. This highlights broadening price pressures and may raise expectations of a shift away from Japan’s ultra-loose monetary policy.
New Zealand’s central bank has indicated an end to its tightening of interest rates, after a hike of 25 basis points lifted them to a more than 14-year high of 5.5%. The move defied market expectations amid what has been the bank’s most aggressive hiking cycle since 1999.
South Africa’s central bank has also lifted its main interest rate to a 14-year high. The 50-basis-point rise is a “bitter medicine” needed to tame inflation, said Governor of the South African Reserve Bank Lesetja Kganyago. Rates now stand at 8.25%, and the bank has upped its inflation forecasts for this year and next.
Emerging economies will continue to face tighter credit conditions because of a spillover of economic problems from the US, according to Moody’s. US monetary policy, banking system stresses and the potential effects of debt ceiling disagreements are all contributing factors, the credit agency said, adding that the US is on track for a mild recession in the second half of this year.
4. More on finance and the economy on Agenda
G7 members say they want to de-risk their relationship with China – but not decouple from it – in order to ensure economic resilience and security. This means diversifying supply chains to avoid being dependent on one country, particularly for critical products such as microchips and minerals used in clean-energy technologies.
Why exactly does the US have a debt ceiling? World Economic Forum Digital Editor for Strategic Intelligence, John Letzing, explains all.
The preliminary findings of a four-day-week trial at British skincare maker Five Squirrels suggest that it holds potential benefits for companies, as it encourages increased investments in equipment and training. It is one of a number of trials of four-day working weeks that has drawn interest from economists and businesses keen to find a solution to a slowdown in productivity growth in Britain and other Western economies.
Source: World Economic Forum