German Construction Orders Bounced in February
Economic news and commentary for April 25, 2023
Germany Construction New Orders
German new construction orders bounced in February, up 4.2% MoM. However, the sector's activity is still sharply lower than a year ago with new orders down -15.4% YoY. Inflation is still having a large impact on the sector. On a nominal basis, new orders are only down -3.4% YoY. Has this bottomed? Who knows. Regardless, future ECB rate hikes are likely to keep construction activity constrained. Additionally, tighter lending standards in response to financial stability concerns are also likely to leave planned projects on hold.
Still to come…
9:00 am (EST) - US Case-Shiller Home Price Index
9:00 am - US FHFA House Price Index
10:00 am - US Consumer Confidence
10:00 am - US New Home Sales
10:00 am - US Richmond Fed Manufacturing Survey
9:30 pm - Australia CPI
Morning Reading List
US
April Flashlight for the FOMC Blackout Period: Is the Tightening Cycle Coming to an End? (Wells Fargo) - We expect the FOMC to raise the target range for the fed funds rate by 25 bps on May 3, bringing it up to 5.00%-5.25% from 0.00%-0.25% only 14 months ago. We also anticipate that the Committee will continue quantitative tightening (QT) at its current pace.
Debt Ceiling Update: X Marks the Spot (Wells Fargo) - In mid-January, we published a report on the outlook for the U.S. federal government's borrowing limit, also known as the debt ceiling. Since then, the U.S. economy has evolved tumultuously. However, one thing that has not changed over the past few months is policymakers inability to come to an agreement to increase or suspend the debt ceiling. Our sense is that Congress and the president are no closer to a debt ceiling resolution than they were when we published our last report on January 19.
Closer to a Turning Point (First Trust Portfolios) - In spite of weakness in some economic data, problems in the banking sector, and much higher interest rates, real GDP in the first quarter will almost certainly show moderate growth. Meanwhile, the S&P 500 is 15% higher than its low point in October 2022. And, now, many are starting to believe that a recession isn’t going to happen.
US - Cooling, but not quickly enough (ABN AMRO) - The US economy is cooling, but only very slowly. Financial buffers are likely a key factor. Our base case continues to be for contracting output in Q2-Q3. Any further delay to the downturn raises the risk that inflation becomes entrenched at a higher level than the Fed’s 2% target. Fed officials are sounding more cautious given the tightening in lending standards. We see a risk of more rate hikes if tighter lending standards prove to be temporary.
Europe
Frequency of 7-day US dollar liquidity-providing operations as of 1 May 2023 (ECB) - ECB and other major central banks to revert the frequency of 7-day US dollar operations from daily to once per week.
Eurozone - GDP contraction taking shape (ABN AMRO) - The eurozone economy seems to be heading towards a moderate recession. We expect a modest contraction in GDP during most of this year. Underlying inflation is not easing yet, with wage growth higher than expected in Q4 and core inflation rising in March. We expect the ECB therefore to hike rates further, with the deposit rate peaking at 3.75%.
The Netherlands - Consumption resilient, despite purchasing power loss (ABN AMRO) - We expect annual growth to slow to 1.2% in 2023 (from 4.5% in 2022). The near-term risks to our view are tilted to the upside, while medium-term risks are to the downside. HICP inflation is expected to average 4.6% in 2023 and 4.1% in 2024.
Asia
The puzzle of the Chinese economy (Saxo Bank) - There is a broad consensus among economists that the reopening of the Chinese economy will be one of the main drivers of global growth in the coming quarters. That’s still uncertain.
China - The reopening rebound firms, led by consumption/services (ABN AMRO) - China’s reopening rebound, led by consumption/services, has firmed. Real GDP growth accelerated in Q1, while activity data for March on balance point to strengthening momentum, with the housing market stabilising further. The main risks to the Chinese economy are the downturn in global demand, and ongoing tensions with the US on tech and Taiwan.
China Macro Monitor - 2023 growth revised up to 6.2% (Danske Bank) - We have lifted our GDP forecast for 2023 to 6.2% from 5.5%. It mainly reflects that Q1 was stronger than expected and thus provides a higher base for the year. However, we see growth momentum moving lower from here but still stay above potential growth rest of 2023. Our estimate for 2024 is lowered to 5.0% from 5.2%.
South Korea: 1Q23 GDP rebounds due to private consumption and exports (ING) - South Korea has avoided a technical recession as GDP expanded 0.3% QoQ in 1Q23. Upside surprises came from private consumption and exports. We have revised our annual GDP forecasts for 2023 from 0.7%YoY to 0.9%.
Taiwan’s economic outlook: a challenging year as global semiconductor sales slump (ING) - This note analyses the macroeconomic environment of Taiwan. The economy should have entered a mild recession in the first quarter of the year due to low demand for semiconductors. We look at how fiscal and monetary policies could help the economy during this hard time. We also expect USD/TWD to be volatile during the year.
Canada
A Sober Second Look: Taking Stock of the Competitiveness of Canada’s Climate Policy Framework Relative to the U.S. (TD Bank) - Despite criticism, Canada’s financial support for the clean energy transition is yielding positive results and has established a competitive position relative to the U.S.
Inflation
Inflation Monitor for April 24 (BMO) - Canada’s inflation rate continues to moderate and is at the low end of the major economies at 4.3% in March. While that should keep the Bank of Canada on the sidelines, it will not stand at ease until inflation hits 2%.
PMIs
Flash PMI data signal fastest developed world growth for 11 months, price pressures rise further (S&P Global) - Economic growth across the four largest developed economies has accelerated to the fastest for 11 months in April, according to early 'flash' PMI data compiled by S&P Global. Growth is unbalanced, however, being driven entirely by services, as manufacturers continue to struggle amid falling demand.
Real Estate
Lower Rates Spark Housing Demand (NAHB) - The retreat in mortgage interest rates during the first quarter of 2023 (from the 20-year peak reached in the fall of 2022) led a record share of adults in the US – 18 percent – to declare having plans to buy a home within a year – the largest share since the inception of this series in 2018. The finding also means the share of prospective buyers jumped 5 points in a single quarter, rising from 13 percent in the final quarter of 2022.
Lessons in Homebuying from a Behavioral Economist (St Louis Fed) - Daryl Fairweather, chief economist at real estate company Redfin, has an important piece of advice for homebuyers: Don’t let bias or emotions guide your decision.
Outlook
Global Monthly - Will cash buffers limit the coming downturn? (ABN AMRO) - While the tightening of bank lending conditions clearly points towards an upcoming downturn, corporate and household balance sheets point towards resilience. Looking into these buffers in detail, we find that households are better placed to weather the coming recession than corporates, and that the US is better placed than the eurozone. However, buffers can only blunt or delay the onset of recessions, which we judge will be necessary to bring inflation sustainably back to target – both in the US and in the eurozone.
Global economic forecasts as of 24 April 2023 (ABN AMRO) - Group Economics writes daily about developments in the macro economy. Here are our latest forecasts on interest rate and currency developments, prices in commodity markets and the economic trend in developed and emerging markets.
The global economy shows resilience in the face of tightening financial conditions (S&P Global) - Despite persistent inflation and tightening financial conditions, the global economic expansion will continue at a moderate pace. Near-term growth is dominated by service sectors that are enjoying renewed post-pandemic demand. Economic performance will vary widely across regions, with growth in Europe and the Americas experiencing subpar growth and emerging markets of Asia-Pacific and parts of Africa achieving robust growth.
Research
How the Death Rate Affects the Aging of the US Population (St Louis Fed) - The age distribution of the population is affected by the birth rate, death rate, and net migration rate. If the inflow of immigrants exceeds the outflow, and if immigrants are on average younger than citizens, then the population would get younger. Similarly, higher birth rates imply that the population will get younger. Much of the discussion on US population aging has been on birth rates and immigration (Howard, 2019; Murray, 2021; and Williams, 2020). We focus on the effect of death rates on the increased average age of the US population.
Subscribe to receive Econ Mornings every weekday at 9 am. More economic and finance content on Twitter, Reddit, and my website.