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Edward Bell - Senior Director, Market Economics
Published Date: 26 May 2023
A resolution to the US debt ceiling impasse looks to be nearing with the outline of a deal emerging overnight. The ceiling could reportedly be raised for two years along with a cap on overall government spending. Defence spending would still be permitted to increase next year. However, a full deal has still not been reached with Moody’s raising the pressure on the US, saying that if the government missed an interest payment in mid-June then the US would be at risk of losing its AAA rating.
Turkey’s central bank left the one-week repo rate at 8.5%, the level it has held since cutting rates by 50bps in February. According to the MPC statement, rates are at levels “adequate to support the necessary recovery” in Turkey’s economy following an earthquake that affected the south-eastern parts of the country in February. Markets had generally expected rates to remain on hold and reaction in currency markets was limited. More focus will be on the upcoming second-round of the presidential elections (May 28) and the impact they may have on the future path of economic and monetary policy.
The final estimate of Q1 GDP for Germany showed that the Eurozone’s largest economy did indeed fall into recession in Q1 after economic growth was revised down to a contraction of 0.3% q/q after a fall of 0.5% in Q4 2022. A slowdown in consumer activity seemed to be behind the drop in activity though more recent PMI prints have suggested that growth is starting to turn around though is unlikely to show substantial vigour as Germany’s manufacturing sector remains in the doldrums.
The US economy expanded by 1.3% q/q annualized in Q1 according to the second estimate of GDP. That is an upward revision from the initial estimate of growth of 1.1% and was on the back of a healthy improvement in personal consumption which was revised up to 3.8% q/q. Price pressures remain elevated, however, with core PCE q/q at 5% in Q1, marginally higher than 4.9% reported previously.
US initial jobless claims were slightly higher last week at 229k, up from 225k a week earlier but still at levels suggesting strong overall activity in the labour market. Continuing claims for the week prior dropped to 1.79m from 1.8m previously. The non-farm payrolls report for May is due next week with market estimates for about 180k jobs to have been added.
BoE keep rates unchanged
OECD revise global growth down in 2024