Charts of the Week (Apr 28, 2023)

Global financial stress Although there has been a little more instability in financial markets in recent days, the state of play at present appears to be much less acute (for now) compared with late March. This is evidenced by the ECB’s composite indicators of financial stress in chart 1 below. These gauges bolted sharply higher in mid-March as banking concerns began to surface and most notably in the US and Europe. Since then, however, and partly thanks to ample liquidity support from central banks, financial stress has eased. Indeed prior to the last couple of days, these gauges were closing in on the multi-month lows seen in February.

Consumer confidence This week’s consumer confidence surveys from the US, Germany and the UK carried conflicting messages about the outlook for their respective economies. The more forward-looking expectations components from April’s German and UK surveys, for example, rose to 14 and 15-month highs respectively, and now lie above their long-term average. In vivid contrast, however, the expectations gauge from the latest US Conference Board survey fell back sharply, to a 9-month low in April, and to a level that’s well below its long-term average (see chart above). The improvement in consumer confidence in Europe can be traced, in part, to recent falls in energy prices as this chimes with some of the finer detail of these surveys showing ebbing inflation expectations. Heightened pessimism in the US, in the meantime, has probably been driven by the recent instability in the banking sector and broader fears about the impact of this on the economy.

US capex orders That expectations component from the US Conference Board survey is a widely watched leading indicator of the US economy but so too are durable goods orders, the March data for which were also published this week. And the core capital goods orders component of these data additionally struck a sour note, falling by 0.4% m/m, and are now down on a monthly basis in 4 out of the past 5 months.

Skilled labour shortages in Europe This week’s surveys from Europe in the meantime conveyed some mixed messages about the economic outlook. As noted above with respect to the UK and Germany, consumer confidence has rebounded in recent months thanks to falling energy prices. But apart from in selected service sectors, business confidence has been much more depressed. This week’s CBI quarterly industrial trends survey from the UK and the monthly European Commission survey from the euro area additionally suggest that skilled labour shortage remain very acute, as evidenced in chart 4 below.

Commodity prices and emerging market inflation On a brighter note, evidence is accumulating to suggest that many central banks in Asia are close to completing their tightening cycles. Recent weeks have seen a pause, for example, from central banks in India, South Korea, Indonesia and Singapore. A key reason for this concerns the tight relationship between commodity prices and inflation outcomes in the region. Weaker commodity prices in recent months, in other words, have caused headline inflation pressures to unexpectedly abate and this has taken pressure off many central banks to continue tightening monetary policy.

Global GDP shares in 2022 The growing importance of the Asian region – and China and India in particular - for the world economy is the focus in our final chart this week. Specifically, we look in chart 6 below at the IMF’s estimates for the share of global GDP of the US, Europe (the EU) and Japan and contrast these with the share of China, India and the rest of the world. Measured using purchasing-power-parity-adjusted GDP weights the IMF calculates that China accounted for 19.2% of global output in 2022 while India accounted for 7.5%. These contrast with the US, which accounted for 16.2%, the European Union which accounted for 15.4% and Japan which accounted for 3.9%.