Charts of the Week: Politics and Economics

Household purchasing power Incumbent political parties have failed to generate the degree of support that they had hoped for in recent elections. This week’s election results from India is a case in point. Alternatively, latest opinion polls suggest that incumbents could struggle to get re-elected in forthcoming elections later this year. There are undeniably several local factors that are responsible for this. But there are arguably some broader globally-rooted secular forces that are responsible too. They concern geopolitics, climate change, new technologies and ageing populations, among others. But in combination with one another, these have conspired to compress household purchasing power and amplify uncertainty via their impact on supply chains, inflation and interest rates, job security and public spending pressures (e.g. on healthcare). Estimates from the Federal Reserve Bank of Dallas, for instance suggest that in 2023 Q4 real household personal disposable income per head was only 0.6% higher than its pre-COVID level in Q1 2020 in the United States. And at the broader global level it was only 1.9% higher (chart 1).

Global economic policy uncertainty In the meantime, economic policy uncertainty remains high. Lower uncertainty in Europe has admittedly offered some relief in recent months. Even so, overall average levels of uncertainty at the global level are still well above longer-term averages (chart 2).

Oil prices and global growth High energy prices in recent years and their inflation and monetary policy implications have arguably been a key driver of policy uncertainty. The past week’s sharp declines in oil prices are, therefore, welcome. Prices initially fell sharply following OPEC+'s announcement of its intentions to ramp up production. But alongside this, disappointing data releases could have further impacted market sentiment (see chart 3).

US manufacturing activity and EM trade One of these disappointing data releases was this week’s US ISM survey of manufacturing. The headline index from that survey specifically dropped to 48.7 in May from April's 49.2. The primary driver behind the downturn was the decrease in new orders – a good indicator of demand. That decline chimes too, however, with the broader messaging from other indicators of global trade. Emerging market export volumes, for example, plunged by 3.7% in the year to March following growth of 7.9% in February.

Japan’s wage inflation Another noteworthy data point this week concerned Japan’s labour market. Specifically, overall nominal cash earnings surged by 2.1% y/y in April, suggesting that wage pressures within the economy are strengthening. Furthermore, nominal base wages climbed by 2.3%, marking its highest increase in decades. However, despite this, Japan's nominal wage growth still lags behind inflation, and suggest a further retreat in real wage growth (see chart 5).

China’s EV production China's EV market has expanded substantially in recent years. However, this growth has lately slowed, indicating a transition to a more mature stage and reflecting the effects of phased-out state subsidies. Despite this moderation, the sector continues to experience double-digit growth, with EV exports surging by 70.3% y/y in April. China's EV market has gained significant prominence, initially domestically and more recently on the international stage. Specifically, the retail penetration of new energy vehicle sales in China has jumped from 3.4% in October 2019 to nearly 44% in April 2024. This phenomenal growth in EV exports has also caught the attention of China’s US and European trading partners– major destinations for China's EVs – leading to higher US tariffs on China’s exports and active consideration of similar policies from Europe too.