Amidst persistent inflation, the US economy battles for stability, while the Fed adds a twist of unpredictability.
US economy is resilient but faces headwinds.
China have displayed robust growth but that is being put into question.
What can be said about economic recovery?🧵
Macro Pulse Update 01.06.2023
An uncertain economy for the global powers.
1️⃣US economy of resilience amidst lingering inflation
2️⃣Fed express uncertain future
3️⃣Potential factors limiting growth prospects in China
1️⃣US economy of resilience amidst lingering inflation
🟢Robust Consumer Spending
Consumer sector shows good resilience that will drive economic activity
Despite stagnant income growth, US households exhibited a significant increase in spending during April.
🟢Strengthening Investment Demand
Rise in new orders for core capital goods indicates growing demand for investment in essential assets. This reflects positive sentiment and confidence among businesses, contributing to the overall resilience of the economy.
🔴Inflationary Concerns
PCE deflator showed an acceleration in price increases during April.
It's challenging here because of the delicate balance between economic growth vs regulating inflation, as the effects of both work in different directions.
🟡Complex Policy Decisions
We are seeing mixed economic signals, so the situation has to be weighed carefully to consider also inflationary concerns
I would expect the Fed to be more cautious with their decision making.
2️⃣Fed express uncertain future🟡
Investors' sentiment suggests that the Federal Reserve is leaning towards pausing interest-rate hikes due to weaker credit market conditions from the recent banking crisis.
The "uncertainty" sentiment is also mentioned by the FOMC committee as they discuss the interest rate projections.
3️⃣Potential factors limiting growth prospects in China🔴
China's economic growth is facing constraints due to its heavy reliance on debt-fueled investment, particularly in property and state-owned businesses.
Excessive levels of debt and inefficient investment have led to diminishing returns and excess capacity in the economy.
So, to sustain growth and avoid a sharp slowdown, China needs to rebalance its economy by increasing tech investment and household consumption.
However, China is already experiencing weaknesses such as slow household spending, rising youth unemployment, weak private sector investment, and declining exports.
Many expect an easing of monetary policy, but China's central bank continues to pause interest rates.