How fast is the eurozone recovering from the shock of high gas prices?
The recovery of the eurozone economy after last year’s energy price crisis is expected to be confirmed this week with the release of gross domestic product figures showing a return to positive growth in the first quarter.
A continued drop in energy prices (natural gas futures are down 45 percent since late December) has given a boost to economic activity as concerns about potential fuel shortages and a recession have eased. .
Economists polled by Reuters expect first-quarter GDP in the single-currency bloc to rise 0.2 percent from the previous quarter and 1.3 percent from a year earlier. That compares with zero growth in the fourth quarter.
Reinhard Cluse, economist at Swiss bank UBS, said: “Incoming hard data, particularly industrial production and construction, has clearly reinforced the upside risk for the first quarter.”
Eurozone industrial production rose 1 percent on a month in January and 1.5 percent in February as easing of supply bottlenecks lifted output at factories, particularly automakers. . Construction also picked up with growth of 3.8% in January and 2.3% in February. One soft spot is retail spending, which fell 0.8 percent in February, wiping out January gains.
But trade provided “a significant boost” to eurozone GDP this year, according to Melanie Debono, an economist at the Pantheon Macroeconomics research group. Exports were boosted by the lifting of zero covid policies by China, while imports fell due to lower energy prices. The bloc’s trade deficit fell from more than 13 billion euros in December to almost zero in February. Martin Arnold
Will US growth have slowed in the first quarter?
The US economy is expected to have expanded in the first quarter, but at a slower pace than in the fourth quarter of last year, as the Federal Reserve’s aggressive drive to tighten monetary policy takes its toll.
Economists polled by Reuters forecast that gross domestic product will have risen 2 percent in the first quarter of 2023, up from a 2.6 percent rise in the fourth quarter. Citi analysts argue that rising home sales will have driven the headline number for the first time since late 2021.
The slowest growth occurs when interest rates are at their highest level in 15 years, in a range of 4.75 to 5 percent. Higher interest rates limit lending to businesses and individuals, slowing the economy along the way.
The first quarter also contained banking turmoil following the collapse of two regional US lenders, SVB and Signature Bank. Although that is expected to have reduced lending, particularly in commercial real estate, those effects may not be apparent in the first quarter data.
The Fed continues to argue that a “soft landing” for the economy is possible, so it could bring inflation down to its 2% target without pushing the country into recession. Market participants are less convinced and are pricing in interest rate cuts as soon as the end of this year, implying a recession in the second half. kate duguid
Will the BoJ make it easier to control the yield curve?
Markets are preparing for Kazuo Ueda’s inaugural policy meeting as Bank of Japan governor, at a time when decades-long high inflation makes the BoJ’s ultra-loose monetary stance harder to sustain.
Investors had been speculating for weeks that the arrival of the 71-year-old academic, who took over on April 10, could lead to the removal of the BoJ’s yield curve control, a policy that has been in place since 2016 to maintain rates in the benchmark 10-year JGB at or around zero.
Analysts at Japan’s Nomura bank believe the BoJ will wait until June before beginning to ease yield curve control. Japan’s inflation, excluding volatile food and energy prices, hit 3.8% in March, its highest level since 1981, but wage growth has been more subdued.
“The Bank of Japan is unlikely to change policy next week because it has been saying it needs wage inflation to break yield curve control,” said Jordan Rochester, currency strategist at Nomura.
In his first press conference, Ueda said it was “appropriate to maintain control of the yield curve for now” given current economic, financial and price conditions.
Instead, Ueda could use the Thursday-Friday meeting to shift the BoJ’s forward guidance for monetary policy from the impact of the Covid-19 pandemic towards the inflation outlook, which could sow the seeds of tighter policy. .
But traders are not ruling out the possibility of the world’s third-largest economy taking the market by surprise next week, as it did in December when the target range for yield curve control doubled to plus or minus 0.5. percent. Mary McDougall