Investor sentiment in Germany fell more than expected in May, pointing to a worsening economic situation over the next six months. The decline has fuelled fears of a mild recession, the first time the ZEW economic research indicator has fallen into negative territory since December 2022. Factors cited include weak macroeconomic data, ongoing interest rate rises, turmoil in the banking sector and the US debt ceiling debate.
The Turkish bond market suffered for a second consecutive day, with both government and corporate bonds declining as well as banking stocks, as investor certainty grew that President Tayyip Erdogan would retain control and implement his unconventional economic policies into a third decade. Market ructions were caused by Erdogan’s better-than-expected position in the presidential race, but falling just shy of the majority threshold, forcing a run-off vote against opposition leader Kemal Kilicdaroglu. Analysts had anticipated a Kilicdaroglu victory would result in the reform or reversal of some of Erdogan’s economic policies.
The United Nations has predicted economic growth of 2.3% in 2023, a 0.4 percentage point increase from its January forecast. However, compared to the average growth rate in the two decades prior to the pandemic, the figure remains low. The UN report also noted that for many developing countries, growth prospects were weakening "amid tightening credit conditions and rising costs of external financing". The US, European Union and China have seen some improvements, although the growth targets set in the 2030 Agenda for Sustainable Development were not met.
Canada is making the same mistakes as Argentina and South Africa, said George Athanassakos, professor of finance and holder of the Ben Graham Chair in Value Investing at the Ivey Business School, University of Western Ontario. He added the government was discouraging entrepreneurship and wealth creation by favouring taxing corporations and adding regulatory impediments to corporate activity. Canada, he said, had a productivity problem that has gotten worse over the past decade and believes the government should channel its focus into industries such as robotics, cybersecurity and additive manufacturing.
The United Nations Department of Economic and Social Affairs has predicted a slight uptick in financial growth rates for China, the European Union and the US, but warns the global economy will remain weak owing to a number of factors, including inflated pricing and the ongoing impact of COVID-19. The body flagged stubbornly high inflation rates, alongside credit squeezes and environmental factors, as negatively impacting growth in emerging markets. While revised projections indicate a 2.3% rise in the world GDP in 2023, this is far below a 3.1% increase experienced in 2022.
The United Conservative Party in Alberta has criticized the economic plan for the province released by the New Democratic Party (NDP), stating that it will lead to job losses and population decline. The NDP's plan, which forecasts a $3.3bn surplus over three years, includes an increase in the corporate tax rate from 8% to 11% to boost revenue, though the UCP claims this will translate into a 38% tax increase for businesses. Alberta goes to the polls on 29 May.
Ghana and Zambia have highlighted the urgent need for co-operation between western creditors, multilateral lenders and China over the restructuring of debt in African countries. Ghana, which has have been in 16 IMF programmes since gaining independence in 1957, will this month enter into a $3bn programme. Zambia, meanwhile, has struggled to agree detailed terms for the restructuring of its debt. Both countries point to a new era of austerity in Africa, where public debt is now at its highest level in decades, and which will have a significant impact on African economies and domestic politics. “Frontier Africa” – where the two countries are placed – need to borrow about $30bn a year to service existing foreign debts, it has been calculated. Debt service is chewing up government revenue in better-run countries such as Ivory Coast and Senegal, accounting for about one-quarter of revenue.
The Biden administration intends to prioritize a “precise, limited” approach to decoupling from China that will protect US interests in key areas while keeping the larger economic bonds between the two nations mostly intact. Washington will deploy financial sanctions and export controls to reshape the economic relationship if necessary, acting with key partners and allies if possible, but it will apply these tools narrowly to limit spillover into non-strategic areas. Some American lawmakers have criticized the Biden administration’s approach. China is also moving to reduce its vulnerability to US sanctions by establishing dominance in areas ranging from critical minerals to telecommunications.
Uncertainty over the US debt ceiling is set to continue as traders brace for April inflation data for the eurozone, with European markets predicted to open lower. UBS Group AG is poised to release its financial statement detailing the $17bn hit it took from the takeover of Credit Suisse Group AG. Meanwhile, BlackRock is requesting its staff return to the office at least four days a week as pandemic restrictions are lifted globally. The recession in Japan has lifted as the country rebounds post-pandemic to offset global economic challenges, while Warren Buffett increased his influence in Capital One Financial Corp.
The G7 leaders are meeting in Hiroshima for their annual summit, which will focus heavily on the threat China’s economic coercion poses to the seven countries. The use of that coercion – punitive trade measures – has raised concern throughout Asia-Pacific and Europe, with some countries including Japan, Australia and South Korea having faced trade restrictions following disputes with Beijing over issues related to Taiwan and the origins of Covid-19. The G7 is reportedly preparing a statement of concern over such practices and may suggest ways to co-operate – but members are deeply divided over how to manage their business ties with China.
Local councils should decide whether proposed housing developments should be built on green belt land, according to UK Labour Party leader Sir Keir Starmer. Speaking ahead of a conference for the British Chambers of Commerce, Starmer said: “It cannot be reduced to a simple discussion of will you or will you not build on the green belt.” Critics of housebuilding on such land often have valid objections, he added. The issue cannot be boiled down to “green belt, not green belt” because “it’s how you direct where the housing will be”, he said.
Asian markets were muted in early trade on 19 May, with the US debt ceiling talks and mixed economic data weighing on sentiment. MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.20% lower, while Australia's S&P/ASX 200 index was down 0.56%. However, Japan’s Nikkei spiked 0.68% higher, scaling above 30,000 for the first time since September 2021. Meanwhile, without an agreement on the looming U.S. debt default, in about two weeks, the government might not be able to pay its bills, with economists fearing the country will likely slide into a recession.
During his first official visit to South Korea, Canadian Prime Minister Justin Trudeau warns that authoritarianism is gaining ground and "antagonistic countries" are taking advantage of economic interdependence to their own geopolitical advantage. He adds that Canada and South Korea can be partners in addressing climate change, which is also a way to safeguard against geopolitical instability and build more resilient economies. The visit comes as both countries try to strengthen economic and military ties to counterbalance the influence of China.
The Group of Seven (G7) is discussing "economic coercion" ahead of the Hiroshima summit with China in mind. A central theme in the upcoming conference is increasing economic security with greater international cooperation to reduce dependence on China for supplying strategically important goods, such as semiconductors, materials for electric vehicle batteries, and pharmaceuticals. China has increasingly adopted this tactic, putting import tariffs on Australian produce following its call for an independent inquiry into the origins of COVID-19, and blocking trade with Lithuania after the opening of an office in Taipei. The G7 meeting is expected to result in policy documents on specific policies, including economic security.
Asia's bullish stock traders are dwindling as China's post-Covid economic recovery has failed to rally stocks in a sustained way, reinforced by a recent miss in April economic data, from industrial production to fixed-asset investment. Concerns centre on the speed and strength of China's recovery and a looming overseas recession that will add to the pressure on external demand. The lacklustre trading pattern has led to a drop in the number of investors bullish on China's recovery, a recent survey by Bank of America revealed, adding that India has overtaken China as the favourite for investors in Asia. Per capita consumer spending during May's golden week holiday came in below pre-pandemic levels. Property investment continued to contract, and youth unemployment hit a record high of 20.4% – but that data excluded almost 12 million university graduates who will enter the job market this summer.
The pro-reform Move Forward Party has claimed a shock victory in Thailand's elections, with over 14 million votes and is now seeking to form a coalition with fellow pro-democrats Pheu Thai and five other parties. However, this does not mean Move Forward will now run the government in Thailand's democracy and the party faces several challenges in trying to take power. Winning support of the senate, courts, military, and the establishment, which are deeply conservative and traditional, will be some of the key hurdles for Move Forward as it seeks to reform Section 112 of the Thai Criminal Code: the law protecting the monarchy which shield the ultra-rich monarchy. This will involve demilitarisation, protecting personal and political freedoms, and hacking back monopoly businesses. Furthermore, the party's promise to increase wages, strengthen skills and tackle Thailand's monopoly culture, and to shift to a more balanced foreign policy will also be challenging.
UK Chancellor Jeremy Hunt has stated regulators should recognise their economic responsibilities after gaming giants Activision and Microsoft's $68.7bn merger was blocked by the Competition and Markets Authority (CMA). The decision to prevent the deal was due to fears about detrimental effects on the cloud gaming market. In contrast, European regulatory officials granted their approval for the merger following revisions to ensure healthy market competition. The CMA's handling of the issue prompted criticism from Microsoft's vice-chair and president Brad Smith, who said the UK regulatory environment was inferior to that of the European Union.
The European Central Bank (ECB) has instructed banks to better manage loans to struggling borrowers and their own currency trading, given the context of financial market uncertainty and rising interest rates. Banks have been granted forbearance on the terms of their loans or awarded new loans by banks due to borrowers' inability to pay; the ECB has found deficiencies in how this is being granted or allocated. The bank now expects to see stages of loan issue improved, including identification of clients who struggle to repay loans, ensuring clients are given the correct help, and consulting respondents on the precise details of the loan to ensure the best outcome. Banks' good practice regime for currency trading should include setting limits on FX exposure and considering financial penalties.
Australia has topped a list of the most expensive passports. Compiled by insurance firm William Russell and based on data from the Global Passport Fees 2023 list, the ranking of 38 members of the Organisation for Economic Co-operation and Development (OECD) puts an Australian passport at the top of the list with a price of £192 ($211). Mexico comes second with £142, followed by Switzerland at £117 and Italy at £113. The UK, Greece, France and Denmark all charge £84 for adult passports, while the most expensive student visas are charged by Australia with an average fee of £375.
As India prepares to overtake Germany and Japan as the world's third-largest economy, the country's potential for growth is considered by different economists from opposing perspectives. Narendra Modi's pro-business government has invested in initiatives such as digitisation, whilst critics claim the country suffers from the underinvestment in human capital first outlined by Nehru, resulting in an economy that fails to produce enough jobs or skilled workers. Meanwhile, Whole Numbers and Half Truths by Rukmini S provides an empirical look at India's complex society, covering all aspects from consumption to employment and identifies underemployment as behind India's relatively low official jobless rate.
