Australia
Key Economic Indicators
- Consumer Price Index (CPI): Australia’s CPI for October recorded a year-on-year increase of 2.6%, reflecting a slowdown compared to previous months. This deceleration indicates progress in managing inflation. Significant contributions came from rising food and housing costs, while declines in electricity and fuel prices offset some of the pressure.
- Economic Slowdown: The Australian economy is experiencing significant slowdowns, primarily due to weak household consumption and expected declines in business and housing investment. According to a report from Ai Group, the current economic conditions indicate that Australia is in the longest sustained period of economic weakness since the early 1990s recession. GDP growth has fallen to 1.1% annually in the first quarter of 2024, reflecting a progressive stall in economic activity.
- Inflationary Pressures: Inflation remains a critical issue, with persistent pressures reducing real incomes and household spending. The report indicates that inflation is driven by domestic factors and is expected to keep interest rates higher for longer than previously anticipated. The retail sector, excluding groceries, has been in recession, indicating reduced consumer spending.
Economic Insights
- Real Wage Overhang: A report by Westpac highlighted a “real wage overhang,” where nominal wages appear stable, but real wages—adjusted for inflation—are under pressure. This trend negatively impacts consumer spending and overall economic sentiment.
- Consumer Sentiment: The Westpac-Melbourne Institute Consumer Sentiment Index rose by 5.3% in November, showing a recovery in consumer confidence. However, the underlying details indicate some fragility in this improvement.
- Economic Outlook: On November 18, 2024, the ANZ Economic Outlook indicated that financial conditions have eased, and the economy is responding. The report forecasts a potential reduction in the Official Cash Rate (OCR) to 3.5% by mid-2025 as the economy operates with significant excess capacity and inflation remains around the 2% target midpoint.
New Zealand
Key Economic Developments
- ANZ Economic Outlook: On November 18, 2024, the ANZ forecasted easing financial conditions, with expectations that the Reserve Bank of New Zealand (RBNZ) will reduce the Official Cash Rate (OCR) to 3.5% by mid-2025. This reflects the economy operating with significant excess capacity and inflation near its 2% target midpoint. The RBNZ is likely to adopt a more gradual easing approach as economic activity shows signs of recovery.
- Economic Activity and Unemployment: According to a November 21 RNZ article, New Zealand’s economy is softening. The Infometrics quarterly economic monitor showed flat activity in the three months to September compared to a year ago, with a 2.8% drop in spending for the quarter. Rising unemployment underscores cautious consumer behavior amid ongoing challenges.
- Westpac Economic Insight: On November 22, Westpac highlighted the strong demand for dairy products, which has led to improved prices, benefiting farmers. However, the RBNZ is expected to cut the OCR by 50 basis points in its next meeting, reflecting concerns about sluggish economic growth and inflation dynamics.
Economic Indicators
- Consumer Sentiment: The ANZ Business Outlook Survey showed an increase in business confidence. Employment intentions rose to 14.2, the highest level since November 2021. However, overall economic activity remains weak relative to historical trends.
- Mortgage Rates: Average mortgage rates have climbed to approximately 6.38%, straining household budgets and dampening consumer spending.
Market Outlook
- Recovery Expectations: Analysts anticipate a gradual economic recovery as interest rates decline and financial conditions improve. While current indicators suggest economic softness, there is optimism for a turnaround in the housing market and better business conditions as monetary policy becomes less restrictive.
United Kingdom
Key Economic Developments
- Inflation Rate: The UK’s inflation rate rose to 2.3% in October 2024, up from 1.7% in September. This significant increase reflects pressures in sectors such as health, which experienced 5.6% inflation. Factors driving this rise include higher food prices and lingering effects of the energy crisis linked to geopolitical tensions, particularly the conflict in Ukraine.
- Interest Rates: In November, the Bank of England (BoE) cut interest rates to 4.75%, marking a shift toward easing monetary policy. This comes after rates were held at a 16-year high of 5.25%. The decision was motivated by cooling inflation, though caution remains about potential future inflationary pressures.
Economic Indicators
- Consumer Prices: Despite the rise, the Consumer Prices Index (CPI) remains below the BoE’s 2% target. Inflationary pressures persist in the services sector, even as energy prices have moderated compared to earlier highs.
- Cost of Living Crisis: Persistent inflation has deepened the UK’s cost of living crisis. Rising energy and food costs are straining households, leading to declining living standards. Disposable incomes are expected to continue falling into 2025.
Market Outlook
- Economic Growth Forecasts: Analysts are closely watching the impact of lower borrowing costs on economic growth. While there is optimism that reduced rates may boost consumer spending and investment, recession risks and the broader economic environment remain concerning.
Europe
Key Economic Developments
- Financial Stability Concerns: On November 20, the European Central Bank (ECB) highlighted vulnerabilities in the euro area’s financial stability. Global trade and geopolitical uncertainties weigh on market confidence, while high asset valuations increase risks of sudden corrections, particularly in equity and corporate credit markets. Small and medium enterprises (SMEs) and lower-income households are particularly vulnerable to credit risks.
- Inflation Dynamics: As inflation approaches central bank targets, concerns have shifted toward weak economic growth. Recent disappointing data led to GDP growth forecast revisions for 2025. The ECB is considering further interest rate cuts to balance inflation control with economic support.
- Sector Slowdown: French and German Flash Manufacturing and Services PMI all resulted in disappointing data, showing a slowdown and a weakness to the overall economy and growth.
Economic Indicators
- Interest Rate Outlook: Market expectations include a 50 basis point rate cut at the ECB’s December meeting, as growth prospects weaken. Inflationary pressures persist, fueled by wage growth and low productivity.
Market Outlook
- Consumer Confidence and Spending: Rising disposable incomes from wage growth have yet to translate into robust consumer spending. Households remain cautious due to inflation concerns. The ECB emphasized maintaining financial stability and sound lending standards to support recovery.
United States
Economic Indicators
- Labor Market Conditions: The labor market remains resilient, with payrolls growing at a healthy pace. Unemployment is expected to edge up slightly to 4.4% by year-end as businesses adjust hiring strategies.
- Consumer Spending Trends: Consumer spending is holding steady, although households are showing more prudence due to elevated prices and interest rates. Spending growth is projected to decelerate from 2.6% in 2024 to 2.0% in 2025 as wage growth slows and inflationary pressures persist.
Market Outlook
- PCE Data Anticipation: The Personal Consumption Expenditures (PCE) report, due November 27, will be closely monitored as it is the Federal Reserve’s preferred inflation measure. Core PCE is expected to rise by approximately 0.3% month-over-month.
Japan
Key Economic Developments
- Bank of Japan’s Monetary Policy: Governor Kazuo Ueda emphasized caution ahead of the December 18–19 policy meeting, signaling that decisions will hinge on available data. This reflects a measured approach as the central bank considers further interest rate hikes.
- Economic Growth and Consumer Spending: Japan’s economy grew by 0.9% annually in the July–September quarter, driven by resilient consumer spending. However, adverse weather conditions and factory disruptions raise concerns about sustained growth. Tax cuts have been introduced to boost expenditure and consumer confidence.
Economic Indicators
- Inflation: Inflation stood at 2.5% in September. The Bank of Japan forecasts core inflation at 2.5% for fiscal 2024, reflecting the challenge of balancing growth support with inflation control.
- Political Landscape: Prime Minister Shigeru Ishiba faces political challenges, including a runoff election, which could influence economic policy direction.
Canada
Key Economic Developments
- Consumer Spending: RBC reported a slight uptick in consumer spending for October, following two months of decline. However, when adjusted for population growth, real retail sales remain below pre-pandemic levels, signaling mixed recovery in consumer behavior.
- Inflation Trends: RBC’s Canadian Inflation Watch noted a slight increase in headline inflation for October, driven by slower declines in energy prices. Persistent inflationary pressures may influence the Bank of Canada’s future monetary policy decisions.
