Take Two: ECB Flags July, September Rate Hikes; OECD Cuts World Growth Forecasts

Global Growth

What do you need to know?

The European Central Bank said it intends to raise interest rates by 25 basis points next month in what would be the first hike in 11 years – and signalled a possible larger move in September as it seeks to tackle sustained high prices in the Eurozone. The central bank wants to bring annual inflation back to its 2% target over the medium term after it hit 8.1% in May. It intends to end its bond-buying stimulus programme on 1 July. Last week also saw a sizeable upwards revision to Eurozone GDP growth for Q1, to 0.6% quarter on quarter, after an initial reading of 0.3%.

Around the world

Global growth is expected to slow sharply this year due to the war in Ukraine and supply chain disruptions worsened by COVID-19-driven lockdowns in China. The Organisation for Economic Co-operation and Development cut its 2022 growth forecast to around 3%, well below the 4.5% it predicted in December. It said rising food and energy inflation “is causing hardship for low-income people and raising serious food security risks in the world’s poorest economies.” The World Bank meanwhile cut its 2022 estimate to 2.9% from the 4.1% earlier forecast, and warned many countries were facing stagflation and recession.

Figure in focus: $252.6bn

US exports of goods and services reached a record high of $252.6bn in April, up 3.5% and helping shrink the country’s trade deficit by the most in almost a decade. There were record highs in exports of industrial supplies, petroleum and food. Imports, meanwhile, shrank by 3.4%, reflecting the impact on demand of the Federal Reserve’s rate hike path and signalling that inventory levels may be normalising. Imports from China alone dropped by $10.1bn in the month, but trade data from China for May indicated Beijing exports are picking up again with a spike of 16.9% in the month from a year ago – more than double analysts’ forecasts.

Words of wisdom

Friendshoring: Moving supply chains to trusted ‘friendly’ countries to ensure continued market access. US Treasury Secretary Janet Yellen suggested in a recent speech that friendshoring would “lower the risks to our economy as well as to our trusted trade partners”. Critics claim however that the practice could favour trade partners with similar levels of development, leaving emerging market countries unable to enjoy some of the potential benefits of globalisation, while developed countries would have less access to cheap imports or labour.

What’s coming up

On Monday, India’s inflation data for May is published – the annual rate hit 7.79% in April, its highest since 2014, while Tuesday sees the UK announces its latest unemployment data. On Wednesday, all eyes will be on the US Federal Reserve which convenes to decide on interest rates and deliver its updated economic projections. The Bank of England holds its own monetary policy meeting on Thursday, as does the Bank of Japan. On Friday, a final estimate for May’s Eurozone inflation rate is reported.

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Disclaimer

 

This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

 

Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

 

 

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