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Macroeconomic house view – August 2023

Key points at a glance

  • Global growth of around 3% is base scenario – no recession in near term
  • Central banks announce end of tightening cycle – though no sign of easing as yet
  • The effects of the announced stimulus measures in China are yet to materialise

Global outlook

The late-cycle economic expansion continues, although growth is flagging and monetary policy can be described as tight. Global economic activity is proving more resilient than expected a few months ago. In the short term, there are hardly any signs of impending recession. The waning recovery and the mounting stress in China’s real estate and financial sectors are giving cause for concern.

Even though unemployment rates are slowly moving away from their record lows, labour markets remain tight. Consumer confidence is continuing to improve from a low level. Leading indicators, such as the purchasing managers’ indices, confirm that the economy is slowing. While the services sector is rapidly losing momentum, the downward trend in the manufacturing sector seems to have halted for now, even though the figures still point to a contraction.


Signs that monetary tightening is coming to an end
are getting clearer and clearer.”

Michael Blümke

Signs that monetary tightening is coming to an end are getting clearer and clearer. While the fall in headline inflation confirms this, core inflation is stubborn, especially in the services sector. For this reason, central banks’ resolve to reduce inflation to the target of 2% should not be underestimated. If inflation falls later or, in fact, rises, central banks would again have to rein in monetary policy again, and run the risk of recession. However, at the moment we expect no, or at most one, further rate hike from the two main central banks.


Against the backdrop of healthy consumer spending, falling inflation and a recovery in corporate investment, there is still hope of a soft landing. U.S. economic growth sped up in the second quarter and beat that of other developed economies. Although the delayed impact of monetary policy and stricter lending standards will further slow growth in the coming months, the Federal Reserve Bank of Atlanta’s GDPNow model is forecasting third-quarter real growth at an annualised rate of 5.6%. Even if this estimate is a tad too high, the trend does not point to an acute slowdown. The recovery in the housing construction sector, which has been weak so far, and in manufacturing would support this view. Both the moderate drop in demand for skilled workers and slower growth in employment indicate a gradual lifting of tension in the labour market. Obviously, the U.S. central bank has so far done a good job of reducing overall demand and keeping inflation down to 3.2% without causing a rise in unemployment. However, Fed Chair Jerome Powell repeatedly stated at this year’s Jackson Hole Symposium that the central bank’s work is not yet done, and any further pickup in economic activity could force the Fed to implement further rate hikes.


GDP data for the second quarter indicate that the eurozone economy is out of the technical recession into which it had slipped in the fourth quarter of last year. However, the eurozone economy continues to stagnate. Notably, growth in Germany and Italy is currently particularly weak. It is especially worrying that the services sector, which had led the recovery in the first half of the year, is now also contracting. The purchasing managers’ indices plummeted into negative territory in August. While consumer confidence improved from a low level on the back of a solid labour market, the hard data were disappointing almost across the board: weak demand from abroad impacted on manufacturing, the real estate sector remains under pressure and, despite progress on headline inflation, core inflation remains stubborn at 5.5%. Given that the real interest rate is negative as a result, the ECB is still faced with the dilemma of having to raise interest rates despite an economic downturn. However, we expect the ECB to pause after no more than one further rate hike in order to see how the next macro data points pan out.


China’s economy should stimulate global growth this year. But despite the government’s resolve to boost growth, the recovery has slowed further. The collapse of the real estate market has had further unpleasant consequences in the form of a liquidity crisis in shadow banking and further real estate company defaults. To reduce the risk of contagion, the politburo repeatedly highlighted the need for targeted political measures to restore private-sector confidence, to boost investment and to support the real estate sector. But apart from two interest rate cuts by the PBoC, there have been no large-scale fiscal support measures. The GDP growth target of “about 5%” in 2023 seems to be moving further and further out of reach. Rounding off this none too positive picture is the fact that while most developed economies are still grappling with high inflation, China is now experiencing deflation.