- The Bank of England raised its benchmark interest rate to 5.25% despite a slowdown in consumer-price rises, leading to speculation about when the central bank will end its monetary tightening.
- House prices in Britain fell by 3.8% in July compared to the same month last year, the sharpest decline since July 2009, but the average house price was still higher than earlier this year.
- The Bank of Japan raised its cap on the yield of Japanese ten-year government bonds from 0.5% to 1%, causing the yield to soar to nine-year highs.
- Turkey's annual inflation rate increased to 47.8% in July, the first rise since October, due in part to a new tax on fuel.
- The euro area's economy grew by 0.3% in the second quarter, with much of the growth attributed to changes in intellectual property shifting by multinationals based in Ireland for tax purposes. Germany's GDP growth rate was zero, and Italy's fell by 0.3%.
The downturn in Germany's residential construction sector worsened in July, with a record number of companies reporting dwindling orders, as higher interest rates and rising construction costs hamper new business.
German business activity, particularly in the services sector, experienced its sharpest decline since May 2020, leading to concerns about the country's outlook for the remainder of the year and potential stagflation, as both manufacturing and services sectors are contracting.
Euro zone business activity declined more than expected in August, particularly in Germany, while some inflationary pressures returned, posing a challenge for the European Central Bank's efforts to control inflation without causing a recession.
UK PMI data suggests a 0.2% decline in GDP in Q3, indicating a potential recession as factory output slumps and the economy faces higher interest rates.
The UK and eurozone economies are at risk of recession due to a significant slowdown in private sector activity, with the UK experiencing its poorest performance since the Covid lockdown and Germany being hit particularly hard; the US is also showing signs of strain, with activity slowing to near-stagnation levels.
The Eurozone and UK services PMI data led to a drop in the euro and pound, while weakness was observed in Canadian consumers and China, suggesting a darkening global growth picture as interest rates rise, with the US being the main source of growth but showing signs of slowing in mortgage applications and student debt repayments.
Germany, once known as the "sick man of Europe," is facing a new economic downturn characterized by sticky inflation, falling output, and structural issues such as an aging population and high corporate tax rate, prompting concerns of a prolonged recession; however, the country's strong employment levels, record public finances, and adaptability through its Mittelstand of small and medium-sized businesses provide hope for recovery.
The German economy stagnated in the second quarter of 2023, following a winter recession, with zero growth and a contraction in adjusted GDP, according to data from the statistics office.
European Central Bank policymakers are increasingly concerned about deteriorating growth prospects and there is growing momentum for a pause in rate hikes as major economic indicators come in below expectations, suggesting a recession is now a distinct possibility.
The mood among German businesses worsened in August, falling for the fourth consecutive month and raising concerns about a possible second recession; the Ifo business climate index dropped to 85.7, lower than expected, while the country's economy recorded zero growth in Q2.
The contraction in euro area business activity has intensified, particularly in Germany, leading to expectations that the European Central Bank will pause its interest-rate hike campaign; US mortgage applications for home purchases have hit a three-decade low due to rising borrowing costs; South Korea's exports continue to decline, indicating lackluster global trade; Turkey's interest-rate increase has triggered a rally in the country's assets; shrinking water levels at the Panama Canal due to climate change may cause delays in restocking inventories before Christmas.
The US economy is expected to slow in the coming months due to the Federal Reserve's efforts to combat inflation, which could lead to softer consumer spending and a decrease in stock market returns. Additionally, the resumption of student loan payments in October and the American consumer's credit card addiction pose further uncertainties for the economy. Meanwhile, Germany's economy is facing a contraction and a prolonged recession, which is a stark contrast to its past economic outperformance.
Britain's experience with quantitative easing (QE) and monetary policy has had both positive and negative impacts, with the unnecessary prolonged period of cheap money causing damage, the kamikaze printing of money during the pandemic feeding inflation and leaving taxpayers with a large bill, but also some good news as inflation is expected to decelerate and boost spending power as real incomes rise, although second-round effects could ensure inflation's persistence. The UK economy is weak and policy should focus on averting recession and challenging consensus-thinking on future growth, as the country's composite Purchasing Managers Index (PMI) has fallen to a 31-month low, with the services sector slipping into recession and a slump in retail sales in August. Higher interest rates are causing corporate distress, suggesting the need to stop raising rates, while elevated policy rates and selling of gilts by the Bank of England will keep upward pressure on long-term yields and borrowing and mortgage rates. The expectation of positive real interest rates signals the end of cheap money and offers an opportunity in Britain to rethink fiscal and supply-side policy, encouraging investment, innovation, competitiveness, and improved skills. Overall, the outlook is characterized by falling inflation, weak growth, and the opportunity to reset monetary policy and focus on fiscal policy, the supply side, and investment.
German inflation fell slightly in August, but economists predict that the downward trend will continue in the coming months, with food prices showing above-average growth.
Germany's economic model and banks are struggling, with forecasts showing low growth and poor profitability, highlighting issues such as politicized governance, diminished private sector, and outdated funding methods.
Euro zone manufacturing shows signs of improvement, while China's private PMI unexpectedly rebounds, offering hope for export-reliant economies, but Germany's manufacturing sector remains in a downturn and factory activity weakens in much of Asia.
Large numbers of job cuts and reduced investment are hitting British manufacturing due to a slump in demand, according to the deputy editor of The Telegraph, Tim Wallace. The purchasing managers’ index fell to 43 in August, down from 45.3 in July, the lowest reading since August 2014 and the worst performance since May 2020, shortly after the first Covid-19 lockdown, also the worst since the financial crisis. Wallace cites Make UK economist Fhaheen Khan’s view that interest rates and inflation have lowered sales, sparking job cuts.
Investor morale in the euro zone fell more than expected due to Germany's economic weakness, with the situation being described as "precarious" and potentially leading to a global recession.
German exports fell slightly in July, raising concerns that the country's economy may be at risk of undoing previous gains, as global demand weakens and companies struggle with supply chain issues and eroding competitiveness.
Germany, once hailed as Europe's economic powerhouse, is now facing structural problems and could be on the verge of decline, according to experts, with factors such as stagnant GDP, high inflation, an aging population, overdependence on exports, and underinvestment contributing to its current predicament.
The Eurozone construction PMI in August 2023 decreased slightly to 43.4, marking the sixteenth consecutive month of decline, while the pan-European Stoxx 600 index fell by 0.89%, led by losses in the financial services and banking sectors.
Despite recent optimism around the U.S. economy, Deutsche Bank analysts believe that a recession is more likely than a "soft landing" as the Federal Reserve tightens monetary conditions to curb inflation.
Germany is predicted to experience a prolonged recession this year, making it the only major European economy to contract in 2023, according to the European Commission, with its growth expectations also being cut for 2024; this is attributed to struggles following Russia's invasion of Ukraine and the need to end energy dependency on Moscow.
The European Commission has revised down its economic forecast, citing high prices for goods and services as a significant factor, leading to reduced growth projections for the European Union and the eurozone. Germany is expected to experience a downturn, while inflation is projected to exceed the European Central Bank's target. Weak consumption, credit provisions, and natural disasters are also contributing to the loss of momentum in the economy. However, the report highlights the strength of the EU labor market with a low unemployment rate.
The euro zone's economy is expected to grow slower than previously forecasted due to high inflation and Germany slipping into recession, according to the European Commission.
Germany's economy is expected to contract by 0.4% in 2023 due to higher inflation, rising interest rates, and weaker consumer spending, making it the worst-affected major country in the eurozone, according to the European Commission. The overall eurozone economy is expected to expand by 0.8% in 2023 and 1.3% in 2024, leading to a potential halt in the European Central Bank's tightening of policy. Inflation in the eurozone is projected to average 5.6% in 2023.
The European Commission has lowered its growth outlook for the Eurozone due to Germany's declining economy and the negative effects of energy policies, leading to potential political consequences and a possible economic downturn for the entire EU.
Germany's deep economic troubles, including three consecutive quarters of negative growth, could have significant global implications, especially considering its role as the main driver of economic growth in the euro zone and its high exposure to the Chinese economy.
The German economy is expected to contract this quarter due to a recession in the industry and lackluster private consumption, leading to four consecutive quarters of negative or flat growth.
Germany is projected to be the most heavily impacted by the global economic slowdown due to higher interest rates and weaker global trade, according to the Organisation for Economic Co-operation and Development (OECD), with its economy likely to shrink this year alongside Argentina and experience a weaker 2024. The slowdown in China, inflationary pressures, and tightening monetary policy are among the factors affecting Germany's growth. The OECD also warned of persistent inflation pressures in various economies and called for central banks to maintain restrictive interest rates until underlying inflationary pressures subside.
Germany, once an economic powerhouse, is now the worst-performing major developed economy due to factors such as the loss of cheap Russian natural gas, a slowdown in trade with China, and government inaction on chronic problems, leading to concerns of deindustrialization and the need for urgent solutions.
Germany is facing an economic contraction due to challenges in the manufacturing sector, a disappointing China reopening boost, and higher energy costs, leading to a recession in Europe's largest economy. However, there are still some positive aspects, such as opportunities in Germany's small and mid-sized companies.
