Charts of the Week (May 12, 2023)

Consensus forecasts for economic growth GDP forecasts for 2023 have, on the whole, been revised higher in the US and Europe over the first few months of this year but a sub-trend speed still characterises the outlook for most advanced economies (see chart 1 below). The latest Blue Chip survey did see a small setback to forecasts for the US, specifically to an annual average rate of 1.1% from a prior 1.2%. Expectations for Japan’s economic growth have also been pared back a little since the start of this year. Energy prices, the more generic trend for inflation, the calibration of monetary policy and financial conditions are likely to remain key drivers of the growth outlook in the period ahead.

Sentiment surveys and economic data surprises Relative to Blue Chip economic forecasters – and the messages from some of the data - investors are more downbeat about the economic outlook in the months ahead. That’s the implication of chart 2 below showing a sharp drop in the expectations component in May’s global sentix survey, specifically to -8.0 from -3.6 in April. As the chart further suggests, those investor expectations appear quite low relative to the recent evolution of Citigroup’s global growth surprise index. While incoming economic data have tended to surprise more negatively over the past three weeks, that follows a 7-month stretch from last October to mid-April where positive surprises had been outnumbering negative surprises.

The US credit cycle The underlying health of the US banking sector remains a chief concern for the economic outlook. And this week’s US Senior Loan Officer survey did little to dispel those concerns. Lending standards were tightened across a broad swathe of corporate and consumer lending categories in Q2. Demand for credit in the meantime slumped in most of those categories as well (see chart 3 below).

US small companies and inflation This week’s April NFIB survey of the small company sector chimed with that sobering message from the US banking sector. Confidence slipped to a 10-year low and – perhaps more importantly – price expectations slipped to the lowest level since December 2020. That’s significant because as chart 4 below suggests, those expectations typically foreshadow US headline inflation. It was certainly no surprise to economic forecasters that US CPI inflation dropped again this week, specifically to 4.9% in April from 5.0% in March.

China’s reopening Meanwhile, this week’s economic data from China suggest that the growth momentum from its reopening phase is cooling and that inflationary pressures remain salient by their absence. On the growth side of that equation the Yicai high frequency economic activity index has slumped over the past four weeks, as evidenced in chart 5 below. Relative to a base in 2019 - which might be construed as a year that earmarked ‘normal’ economic activity - the latest reading for this index has slipped below trend.

The global impulse from China’s reopening A further take-away from China’s raft of economic data in recent weeks is the absence of a major spill over from its re-opening phase for activity in the rest of the world. That was certainly the message from this week’s trade data showing a sharp slowdown in China’s import growth in April. It is also the message, moreover, from chart 6 below showing a decoupling between Citigroup’s growth surprise index for China and the surprise index for economies that have high exposure to its trade, namely Australia and the euro area.