A holiday-shortened trading week in the US, combined with persistent political uncertainties on both sides of the Atlantic, have kept financial markets relatively subdued in recent days. Latest data releases have generally supported the prevailing view that US economic growth will remain resilient in the near term, although this strength could come at a cost for the global economy (charts 1 and 2). The Fed's approach to calibrating monetary policy in this environment remains a key area of debate, particularly given the significant role of global factors—such as capital flows—in shaping financial stability (chart 3). Europe, meanwhile, finds itself at the eye of the storm, with political gridlock in Germany and France compounding concerns about the region's economic outlook. In the UK, recent budgetary measures that raised the corporate tax burden have further clouded the picture, sparking worries about their impact on business sentiment and investment. These dynamics risk stalling much-needed structural reforms across Europe, potentially exacerbating global imbalances and widening growth disparities with the US (chart 4). Elsewhere, fears over China’s economic outlook and the trajectory of broader emerging markets have intensified amid speculation over shifts in US trade policy (chart 5). At the same time, climate change and the energy transition remain high on the agenda, with the possibility of significant policy changes in the US adding to the uncertainty (chart 6).
Introducing
Andrew Cates
in:Our Authors
Andy Cates joined Haver Analytics as a Senior Economist in 2020. Andy has more than 25 years of experience forecasting the global economic outlook and in assessing the implications for policy settings and financial markets. He has held various senior positions in London in a number of Investment Banks including as Head of Developed Markets Economics at Nomura and as Chief Eurozone Economist at RBS. These followed a spell of 21 years as Senior International Economist at UBS, 5 of which were spent in Singapore. Prior to his time in financial services Andy was a UK economist at HM Treasury in London holding positions in the domestic forecasting and macroeconomic modelling units. He has a BA in Economics from the University of York and an MSc in Economics and Econometrics from the University of Southampton.
Publications by Andrew Cates
Global| Nov 21 2024Charts of the Week: Policy Conflict
The potential policy implications of a new US administration have been driving financial markets over the past two weeks. Global investors have responded with a more optimistic take on the outlook for the US economy but with more pessimistic views about the rest of the world (chart 1). A potential easing of US fiscal policy (e.g. via tax cuts) has also triggered a re-evaluation of Fed policy, causing US yields and the value of the dollar to climb (chart 2). The reverberations for the rest of the world will, in part, be felt via this impact on the US dollar. But trade channels will also be significant not least for economies with large US exposures (chart 3) and/or those that have been heavily reliant on US import demand to fuel economic growth (chart 4). Energy policies have also been under the spotlight over the past few days thanks to the UN Climate Change Conference (COP29) in Azerbaijan. And potential shifts in US energy policy under a new administration could certainly intensify global tensions surrounding the energy transition. For Europe more specifically, such a shift could complicate its transition strategies and sow the seeds for further economic underperformance compared with the US in the period ahead (charts 5 and 6).
by:Andrew Cates
|in:Economy in Brief
Global| Nov 14 2024Charts of the Week: Leading with a Trump
The macroeconomic implications of a new Trump administration are sparking fervent debate. Financial markets have reacted to last week’s news with heightened expectations of some stimulus through looser fiscal policy, which could spur US growth in the near term. However, that boost may come at the cost of higher domestic inflation, more elevated public debt, and a ripple of adverse effects across the world economy. In our charts this week we illustrate some of the forces at play as policymakers weigh up their responses. For instance, global savings imbalances (chart 1), the US current account deficit (chart 2), and international demand for US financial assets (charts 3 and 4) lie at the epicentre of the policy agenda but equally highlight some of the underlying vulnerabilities. Should next year bring policies designed to curb demand for US imports or limit foreign investment in its financial markets, the repercussions for global economic stability could be significant (chart 5). Concerns are also mounting about energy policy, with the new administration eyeing an aggressive expansion of domestic oil production. While this may reduce energy costs and relieve inflationary pressures, it could carry environmental implications and strain international alliances (chart 6). Until such time as US policy become clearer, the easiest forecast is that uncertainty will persist. But even when some policy clarity emerges there are no guarantees that the fog will clear and there is a high probability that it could linger and even thicken.
by:Andrew Cates
|in:Economy in Brief
Global| Nov 07 2024Charts of the Week: Uncertainty Is the Easy Part
The policy decisions of a new US administration could potentially impact the global economy in a number of ways. Key areas that might be affected include trade and tariffs, geopolitical stability, fiscal policy (US tax cuts), deregulation, and immigration policy. And possibly in anticipation of some economic instability, sentiment toward global equity markets (excluding the US) has soured over the past few weeks (see chart 1). Gauges of global policy uncertainty, in the meantime, have remained relatively high (see chart 2). There remains a strong consensus, nevertheless, that most major central banks will continue to loosen monetary policy over the next 12 months (chart 3). That consensus view, however, might be challenged if prospective US policy decisions prove to be more inflationary (chart 4). One economy that will of course be an immediate area of focus will be China (chart 5). Japan is also in the spotlight at present though that’s more because of some uncertainty surrounding its domestic politics and prospective policy choices in the period ahead (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Oct 31 2024Charts of the Week: Data, Policy and Politics
Some unexpected resilience in the US economy and particularly in the labour market has continued to reinforce soft landing narratives over the past few days. At the broader global level, weaker-than-expected inflation data have also been reinforcing the view that most major central banks will continue to loosen monetary policy in the period ahead. In our charts this week we illustrate how this soft landing narrative continues to shape sentiment in financial markets (see charts 1 and 2). But we illustrate too, that notwithstanding US resilience, latest forward looking business surveys suggest that global growth is losing momentum. Domestic policy and politics, however, have also been important in recent days with the new UK labour government’s first budget dominating the headlines (chart 4). Some uncertainty has additionally crept into Japan’s political scene and generated some financial market consequences (chart 5). Finally, and looking ahead to next week, US politics has continued to dominate the global headlines and may well be a key driver of economic and financial market outcomes in the period immediately ahead (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Oct 24 2024Charts of the Week: Revisions, Risks, Reforms, Repeat
In the absence of incoming data that might have influenced the economic outlook, the financial press has been dominated by other factors, including Q3 corporate earnings reports and US political shenanigans. This week’s IMF meetings in Washington have additionally grabbed headlines and particularly the accompanying reports on the global economic outlook and financial market stability. While the IMF’s projections for global growth for 2024 and 2025 were little-changed compared with the previous full report in April (see chart 1), there were some notable revisions beneath the surface. Upgrades to the US growth outlook, for example, were offset by downgrades to Europe. And downside risks were additionally emphasised amidst elevated policy uncertainty in a number of countries (chart 2). These risks stem from a range of issues, including geopolitical stress in the Middle East, China’s imbalances and their reverberations (chart 3), high levels of debt together with other supply-side challenges such as climate change, the energy transition (chart 4) and ageing populations. Against that backdrop, policy decisions concerning the calibration of monetary and fiscal policy will be crucial (chart 5), as will the ability to implement supply-side reforms (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Oct 17 2024Charts of the Week: Following the Leader
A soft landing narrative has continued to shape sentiment in financial markets over recent days, supported by several factors. These include upbeat corporate earnings news, a sharp drop in oil prices (see chart 1), and weaker-than-expected inflation data (chart 2). However, concerns about global growth persist, particularly given the underwhelming economic data that’s been emerging from China (chart 3). While the monetary policy initiatives announced in late September were met with enthusiasm from investors (chart 4), subsequent fiscal policy measures have clearly fallen short of expectations. Back to a more positive note, the latest euro area bank lending survey suggests that the ECB's recent easing efforts, including this week’s 25bps rate cut, are starting to reap some benefits (chart 5). Meanwhile, ongoing optimism around the role of AI technology has also contributed to a soft landing narrative, despite the absence of clear productivity gains thus far (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Oct 10 2024Charts of the Week: Fed Up with Surprises
Last week’s stronger-than-expected US employment report have combined with some comments from FOMC members suggesting the Fed may be in no great hurry to reduce interest rates next year to generate a big repricing in financial markets over the past few days (see chart 1). Geopolitical uncertainty in the Middle East and its impact on supply chains have additionally been a key focus for many investors (chart 2). The outlook for China is also being more actively debated in light of recent policy initiatives designed to shore up the economy (chart 3). The plight of the euro area, and Germany in particular, is equally causing some concern (chart 4). All that said, the incoming survey data this week have offered some reassurance to those that are anticipating a soft landing for the world economy in the coming months (chart 5). That message was implicit too from the latest Blue Chip Survey of Economic Forecasters (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Oct 04 2024Charts of the Week: Geopolitical Scarring
In recent weeks, financial markets have generally aligned with expectations of a soft landing for the global economy, facilitated by more accommodative policies from central banks (see chart 1). This week’s dataflow have largely reinforced these views (see chart 2) as have the communications from many policymakers. However, the escalation of geopolitical turbulence in the Middle East in recent days is now challenging this narrative. By potentially choking supply chains and raising risk premiums in energy markets, there could be growth and inflation-related consequences for the world economy in the coming weeks (see charts 3). This also serves as a reminder that there are longer-term headwinds that are placing a brake on global growth at present, including high real energy prices (chart 4), de-globalization pressures (chart 5) and lingering debt-related imbalances (see chart 6). And many of these issues could be exacerbated if the turmoil in the Middle East were to intensify.
by:Andrew Cates
|in:Economy in Brief
Global| Sep 26 2024Charts of the Week: Almost Singing the Same Tune
The incoming data over this week have painted a more downbeat picture of the global economic outlook. Latest flash PMI surveys, for instance, revealed broadly-based evidence suggesting that global growth is moderating, and that the euro area in particular is possibly sliding back into recession (chart 1). That more downbeat view was further supported over the past few days by some weakness in other data releases for US consumer confidence (chart 2), for South Korea’s trade and from separate business surveys for Germany and the UK (chart 3). Despite these weaker signals, financial markets have largely taken this news in their stride, possibly due to growing confidence that central banks, and especially the Fed, will still manage to engineer a soft landing for the global economy. China's unexpected announcement of new stimulus measures this week has also provided some reassurance (chart 4). However, several cyclical and structural challenges remain. Service sector inflation, for example, has remained stubbornly high in most major economies in recent months (see chart 5). That was certainly a key factor behind the Reserve Bank of Australia's decision not to initiate an easing cycle this week, in vivid contrast to many of its global peers. Additionally, what constitutes a "normal" level for inflation and real interest rates remains highly debatable, especially in light of recent and prospective supply-side transformations (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Sep 19 2024Charts of the Week: Communication Challenges
The financial market response to this week’s decision by the Fed to lower its policy rate by 50 basis points suggests that investors are uncertain about what that decision might mean for the economic outlook. Longer-term US bond yields, for example, climbed a little (chart 1) while stock markets ended lower on the day though have since re-traced those losses. This uncertainty arguably underscores the great difficulty in calibrating monetary policy and in communicating subsequent intentions at present. As we discuss below, investors remain highly sensitive to incoming data, partly because monetary policy calibration has been equally data-dependent. And the fact that both growth and inflation data have been consistently undershooting expectations has amplified concerns that US (and global) monetary policy has remained too tight for too long (see charts 2 and 3). Still, there are currently very few macroeconomic indicators signalling a high likelihood of an imminent US recession. Equally—and more concerning—latest wage data suggest that labour markets could still be tight (charts 4 and 5). Beyond these cyclical challenges, a debate about where growth and inflation will ultimately stabilize has also been active, with significant uncertainty about what might be considered a “normal” level for nominal and real interest rates. Factors such as ageing demographics, climate change and the energy transition, together with ongoing geopolitical uncertainty are shaping that debate. But how trend productivity growth now evolves will also be key to this and crucial to monitor in the period ahead as well (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Sep 12 2024Charts of the Week: Inflation Focus
The ECB’s decision to lower its key policy rates by 25 basis points this week, while widely anticipated, nevertheless underscores a shift in focus, with central banks now prioritizing economic growth and monetary stimulus. This marks a departure from the post-pandemic period when monetary policy was calibrated to curb inflation. In our charts this week we take a closer look at the global inflation scene. We highlight, for example, the growing confidence from economic forecasters in recent months that inflation would fall to target-friendly levels (chart 1). We move on to examine some of the factors that have driven inflation down to those levels, including easing supply side pressures and slower demand (chart 2). That labour market activity is now additionally beginning to weaken in some major economies, and most notably the US, has generated some pay-off too in the form of weaker wage inflation (chart 3). Where exactly inflation will now settle beyond the next few months is more nuanced and subject to a far more active debate. De-globalisation pressures and climate change, for example, might leave inflation higher for longer in the years ahead. On the other hand, other structural forces, such as the rise in remote working, might help to restrain wage and broader inflationary pressure (charts 4 and 5). Technological innovations, and particularly AI, could also play a significant role in the future by boosting productivity growth and reducing unit cost pressures. But while there is now greater certainty regarding the near-term inflation outlook, considerable uncertainty remains about the longer-term impact of these shifts on the global economy’s supply side (chart 6). They could either enhance efficiency, for example, or introduce new challenges, leaving their effects on inflation and cost structures highly unpredictable beyond the immediate future.
by:Andrew Cates
|in:Economy in Brief
- of14Go to 1 page