In the second quarter of 2023, the downward momentum of the global economy will slow down, and inflation will continue to fall, but the characteristics of recovery differentiation will become increasingly prominent. The global service industry has recovered steadily, and economies such as Europe and the United States, where consumption accounts for a large share of GDP, have performed better than expected. In stark contrast, the recovery of the global manufacturing and merchandise trade sectors is weak, and the growth of export-oriented economies such as Asia-Pacific is under pressure. Major central banks such as Europe and the United States continued to raise interest rates, the U.S. dollar index and U.S. bond yields rose, cross-border capital flowed back to the U.S., and the regional differentiation of global stock markets was obvious.
Looking forward to the third quarter, it is expected that the recovery of the global service industry and the manufacturing industry will continue to diverge, and the continued tightening of global liquidity and financing conditions will have a greater impact on global investment and financing, household consumption and economic growth. However, global inflation will fall further, the rate hike cycle of the US and Europe is about to usher in an inflection point, small and medium-sized banks in the US are still facing liquidity pressure, the wave of global US dollar bond defaults continues, uncertainties remain in the energy market, and the stock market may remain volatile.
1 Global Economic Review and Outlook for the First Half of 2023
The post-epidemic recovery of the global economy is characterized by obvious differentiation, and the downward pressure on the economy continues to increase.
In the first half of 2023, the global economic trend is better than expected, but the downside risks of the economy are gathering. The overall performance of European and American economies, where private consumption accounts for a large proportion of GDP, has been better than expected. In the first and second quarters of 2023, the quarter-on-quarter real GDP growth rate of the United States will be 2% and 2.4%, both of which exceed the estimated value. In the first quarter, the GDP of most countries in the euro zone still achieved positive growth compared with the previous quarter. The real GDP growth rates of France and Italy increased by 0.2 and 0.7 percentage points respectively compared with the previous quarter. However, Germany, the largest economy in the euro zone, fell into a technical recession, dragging down the entire euro zone It shows that the overall GDP growth rate in the euro area fell by 0.1% for two consecutive quarters, showing a slight recession.
Global supply chains are gradually recovering, and inflationary pressures in some economies have eased. The shortage of containers that occurred during the epidemic has been eliminated, and the maritime trade, which undertakes nearly 90% of international trade transportation, has gradually returned to normal. According to data from the Port of Los Angeles, the largest port in North America, and the Port of New York and New Jersey, the largest port on the east coast of the United States, shipping from the United States to Asia has returned to normal, and the proportion of loaded containers in export containers has exceeded 30%, which is close to the pre-epidemic level. In the first five months of this year, the New York Fed’s global supply chain stress index has declined month by month, falling to -1.7 in May, 6 points lower than the highest level at the end of 2021. Under the influence of supply chains and global logistics and transportation gradually returning to normal, commodity prices falling, and tightening monetary policies in Europe and the United States, inflationary pressures in some countries have eased.
Although the overall performance of the European and American economies is better than expected, they are still in a downward trend, which affects the exports of emerging Asian economies. From January to May, the cumulative value of US imports of goods fell by 5.5% year-on-year, of which imports from Indonesia, Vietnam, Malaysia and the Philippines fell by 20.9%, 16.8%, 15.8% and 16.9% respectively. In addition, as an intermediate input, copper is widely used in the production process of infrastructure, automobiles, home appliances and other products. It is usually regarded as a forward-looking index for the recovery of the industrial sector. An important signal of pressure on the growth outlook. At the end of May , the price of containers sent from Shanghai to the West Coast of the United States and Europe dropped by more than 50% year-on-year, which also reflected the weak external demand.
Looking ahead to the third quarter, it is expected that the global economic growth will continue to slow down. At present, inflation in developed economies represented by the G7 is approaching turning points one after another. Under the influence of tightening monetary policies and economic growth deceleration, inflation in major economies is basically on a downward path. It is expected that this trend will continue in the third quarter, but it is 2% The monetary policy target level of inflation rate is still far away. European and American central banks may continue to raise interest rates. The global liquidity and financing environment will continue to tighten, which will have a greater impact on global investment and financing, household consumption and economic growth. , mainly includes three aspects.
First, the growth rate of fixed asset investment in various countries and global cross-border investment will slow down or decline, and the Kitchin cycle will gradually enter the stage of “active destocking” from the stage of “passive inventory replenishment”. As the central interest rate rises in various countries, financing costs increase, and the business environment and profit expectations deteriorate, companies will slow down their investment pace. Investment in fixed assets in various countries will slow down, and the scale of cross-border investment will gradually decline. From the perspective of inventory investment, as the economic cycle changes, companies will gradually adjust their inventory investment strategies. In the first and second quarters, U.S. inventory investment has fallen sharply compared with the end of last year, and may enter a negative growth range in the future, dragging down economic growth.
Second, with the accumulation of interest rate hikes and the emergence of hysteresis effects, service industry consumption will gradually return to normal or even show signs of fatigue after the gap filling effect. In the first half of the year, as the impact of the epidemic on global economic life weakened, the global service industry as a whole was in a state of rapid recovery, among which contact services such as catering, hotel accommodation, entertainment, and transportation recovered well. It is expected that in the second half of the year, with the Wage growth will slow down, the excess savings accumulated during the epidemic will gradually be consumed, household balance sheets will further deteriorate, and the growth rate of consumption in the service industry in developed economies will gradually slow down.
Third, the global liquidity environment continues to tighten, and risks in the banking industry of developed economies still exist. After several interest rate hikes, the European and American central banks are currently gradually adjusting interest rates to near restrictive levels, and there is a possibility of further increases. Under the series of stabilization measures adopted by the regulators, although the liquidity risk of the European and American banking industry has been temporarily alleviated, considering that some small and medium-sized banks in the United States still have large book investment losses in fixed-income products, bank deposits continue to flow out, and commercial real estate holdings Bond prices have fallen rapidly. In the future, in the environment of the Fed’s continued high interest rate, some small and medium-sized banks may still have a liquidity crisis.
Based on the above factors, the global economy is expected to grow by 1.9% year-on-year in the third quarter, down 0.5 percentage points from the second quarter. Benefiting from the better-than-expected economic performance in the first half of the year, the annual economic growth rate is expected to reach 2.1%, an increase of 0.1 percentage points from the previous estimate.
2 Research and judgment on the economic situation of key countries and regions
The U.S. economic growth will slow down in the third quarter, and it may show a soft landing or a mild recession in the future. The U.S. economic growth rebounded in the second quarter, but the trend of different sectors diverged. Although the Federal Reserve has gradually raised interest rates to restrictive levels, the U.S. economy has not suffered a major impact for the time being. Demand in the second quarter is still resilient, but the differentiation between the service industry and the manufacturing industry is becoming more and more obvious. In May, the Markit service industry PMI index released by S&P Global hit a 13-month high. Although it fell slightly in June, it was still at a high level; the manufacturing PMI index continued to decline, falling to 46.3% in June, the highest level in the year. A new low, more than 2 percentage points lower than the previous value of 48.4% and the expected value of 48.5%. Combined retail and food service sales in April and May grew by 1.4% year-on-year, showing that consumer spending remained resilient, but growth momentum began to slow, with average monthly sales down 0.3% from the monthly average in the first quarter. The sustained growth of consumer spending is mainly due to the continued tight balance of the US labor market and stable income of residents.
At the same time, some negative factors are also accelerating. High interest rates combined with high inflation still have an impact on the consumption structure of residents. About two-thirds of consumer loans and savings are allocated to services spending, according to the Fed report. In the past few quarters, the scale of consumer spending on goods was basically stable, and the growth in overall spending was mainly contributed by consumption of services (Figure 2). The structural differentiation of the U.S. labor market is becoming more and more obvious. Under the downward pressure of the economy, the wave of layoffs from technology companies has gradually spread to industries such as finance, consumption, manufacturing, and real estate. The U.S. trade deficit expanded in the second quarter, mainly due to the reduction in U.S. oil exports due to the deceleration of global economic growth, coupled with the appreciation of the U.S. dollar, which promoted the steady increase in imports of automobiles, mobile phones and other household goods.
Looking ahead to the third quarter, it is expected that the U.S. economic growth rate will fall again, and the momentum will slow down, but it may not fall into negative growth for the time being. In the third quarter, the US economy will continue the basic trend of the second quarter, but some indicators may change. As consumer spending slows down, import demand may decline, and the global economy and the value of the U.S. dollar will stabilize, which may ease the pressure on the continued rise in the trade deficit, and exports may provide moderate support for U.S. economic growth.
Under the combined effects of the above factors, it is expected that the U.S. economy may experience a soft landing or a mild recession in the third quarter, with an annual growth of about 1.0%, an increase of 0.3 percentage points from the previous estimate.
The European economy may be in a slight recession, and the economic outlook is not optimistic. According to the data released by Eurostat, the seasonally adjusted GDP growth rate of the euro zone in the second quarter of 2023 will be 0.3%, returning to positive growth after two consecutive quarters of contraction, but the economic growth outlook is still not optimistic. In the first quarter, Germany, the largest economy in Europe, was affected by difficulties in industrial production, and its economy fell by 0.3% from the previous quarter. At the same time, the Netherlands also experienced a negative growth of 0.7% from the previous quarter. Recession in major economies has dragged down overall economic performance in Europe. In July, the composite PMI indexes of the euro zone and the UK fell to 48.9% and 50.7% respectively, and the manufacturing PMI indexes dropped to 42.7% and 45% respectively, among which the manufacturing PMI index of the euro zone was the lowest level in 38 months.
Inflation has improved, but core inflation remains sticky. In July, the year-on-year growth rate of CPI in the euro area fell to 5.3% from 5.5% in the previous month, and the core inflation was unchanged from 5.5% in the previous month. The continued tightness of the European labor market has led to core inflation remaining high. According to the latest survey by the European Central Bank, wage growth in euro zone companies is expected to be about 5% in 2023.
Future economic growth prospects in Europe remain fragile. Falling energy prices, easing supply bottlenecks, and fiscal policy support for businesses and residents are helping the economic recovery, but the future growth prospects of the European economy face many headwinds.
First, the manufacturing sector continues to slump. Affected by the continued sluggish demand, the manufacturing industry in the European region has almost stagnated, the manufacturing PMI has declined for consecutive months, and the growth prospects of the manufacturing industry in the European region have continued to deteriorate.
Second, investment growth may contract. Investment activities in the EU region performed well in the first quarter, supporting the overall economy. However, as the low base effect fades at the end of last year and the crowding-out effect of high interest rates continues to release, future investment growth in the EU may face more adverse conditions. In addition, the continuous tightening of financial conditions may once again trigger financial sector turmoil, and the potential dilemma of energy supply shortages has not been fundamentally resolved. These factors may further plague the European economic performance.
Japan’s economy rebounded. In the first half of the year, the Japanese economy picked up. In the first quarter of 2023, Japan’s final real GDP rate is 2.7% quarter-on-quarter, which is a sharp increase from the previously announced initial value of 1.6%, and is also higher than the market’s expected value of 1.9%. After two years of alternating positive and negative quarterly economic growth, Japan’s quarterly economic growth finally ushered in two consecutive quarters of positive growth. In terms of sub-items, business investment grew rapidly, and the month-on-month growth rate was revised up from the initial value of 0.9% to 1.4%. Personal consumption, which accounts for more than half of the economy, increased by 0.5% month-on-month, which was revised down by 0.1 percentage point from the initial value of 0.6%, but still made an important contribution to stimulating economic growth. Domestic demand, such as business equipment investment and personal consumption, contributed 1 percentage point to Japan’s economic growth. External demand is a drag on the Japanese economy. In the first quarter, the export growth of Japanese machinery equipment and automobiles was sluggish, down 4.2% from the previous quarter.
In the second half of the year, Japan’s economic growth prospects will face greater uncertainty. First, consumer spending is slowing down, and the role of domestic demand in supporting the economy remains to be seen. Japanese consumer spending has contracted in recent months, driven by falling real incomes. In June, Japan’s core CPI increased by 3.3% year-on-year, which was higher than the central bank’s 2% target for 15 consecutive months, and the increase was 0.1 percentage points higher than that in May. If inflationary pressures are not alleviated, the real income of Japanese residents will remain under pressure in the future, which is not conducive to the expansion of domestic demand. Second, external demand may remain weak. With the economic downturn in developed economies such as Europe and the United States, it is expected that global economic growth will slow down, and overseas demand may shrink again, dragging down the overall performance of the Japanese economy and curbing the investment enthusiasm of domestic enterprises. It is estimated that Japan’s economic growth rate will be around 1.2% in 2023, an increase of 0.2 percentage points from 2022.
Growth in emerging economies will be under pressure. Since 2023, the growth performance of emerging economies has been lower than expected. The growth momentum of Asian emerging economies weakened. In the first quarter, the GDP of the Philippines, Malaysia and Vietnam grew by 6.4%, 5.6% and 3.3% year-on-year respectively, lower than the growth rate in the fourth quarter of 2022. In the first quarter, Turkey’s GDP grew by 4% year-on-year, slightly higher than in the fourth quarter of last year. The earthquake in southern Turkey in February caused serious economic losses, making it more difficult for its economy to return to high-speed growth. However, post-disaster reconstruction is expected to have a certain boost to the Turkish economy effect. The economic growth rate of energy exporting countries has declined significantly. In the first quarter, Saudi Arabia’s GDP grew by 3.8% year-on-year, falling for three consecutive quarters. The economic performance of Latin American emerging economies is quite different. The economies of Brazil and Mexico performed well. In the first quarter, the GDP grew by 4% and 8.2% year-on-year respectively, and the inflation rate also showed a significant decline. Argentina’s inflation rate keeps rising. In June, the CPI rose by 117.0% year-on-year, the highest level since 1992.
Looking ahead, the growth of emerging economies faces more uncertainties. Insufficient demand from developed economies represented by the United States has led to a decline in exports from emerging Asian economies, weakening the growth momentum of the latter. The economic growth sustainability of Brazil and other Latin American economies remains It remains to be seen, and the GDP growth rate of emerging economies is expected to decline in 2023.
3 International financial market review and outlook: the US dollar may continue to be strong, and the stock market may remain volatile
Since the second quarter of 2023, against the background of geopolitical conflicts, the spread of the banking crisis in the United States and Europe, and the continuous tightening cycle of monetary policies in developed economies, the U.S. dollar index and U.S. bond yields have risen, cross-border capital has flowed back to the United States, and the regional differentiation of global stock markets is obvious. The issue of the US debt ceiling has aroused great concern in the global financial market, and the wave of global US dollar debt defaults continues.
In terms of global monetary policy, the interest rate hike cycle of the United States and Europe is coming to an end, and the monetary policies of the world’s major economies may change.
In the second quarter of 2023, the United States and Europe will continue to tighten their monetary policies, but at a significantly slower pace. Affected by inflation peaking and gradually falling back, the Federal Reserve raised interest rates by 25 basis points in May, raised the target range of the federal funds rate to 5.0%-5.25%, and suspended interest rate hikes in June. The European Central Bank simultaneously slowed down the pace of rate hikes, raising rates by 25 basis points in May and June respectively. The Bank of Japan continued to maintain its loose monetary policy unchanged. The Bank of Japan continues to implement the loose monetary policy under the yield curve management, keeping the short-term interest rate unchanged at -0.1%, and through the purchase of long-term government bonds, the long-term interest rate is kept at around zero, and the upper limit of the long-term interest rate of “around 0.5%” is maintained constant. Some emerging market countries in Asia have suspended interest rate hikes. Due to the recent slowdown in inflation growth and the increasing uncertainty of the economic outlook, the Bank of Korea, the Bank of India and the Bank of Indonesia have successively pressed the “pause button” for raising interest rates.
Looking forward to the third quarter of 2023, the Federal Reserve is close to the “peak” of interest rate hikes, and the end of the global monetary policy tightening cycle is approaching. Currently, controlling inflation is still the Fed’s primary goal. Judging from the pace of interest rate hikes, the Federal Reserve has appropriately slowed down the pace of rate hikes to avoid policy overshooting, and discontinuous rate hikes can provide it with more economic data for decision-making. From the perspective of the end point of interest rate hikes, the latest dot plot released by the Federal Reserve in June shows that two-thirds of the Fed officials had expected the policy rate to be higher than 5.5% in 2023, which means that if there is data as support, it cannot be ruled out that September will continue Possibility of rate hike. However, with the emergence of the lagging effect of interest rate hikes, the global monetary policy contraction cycle may end within this year.
In the exchange rate market, the pattern of a strong US dollar will remain.
In the second quarter of 2023, the U.S. dollar index is generally stable, showing a trend of rising first and then falling. Since April, the U.S. economy has still shown strong resilience, prompting the Federal Reserve to raise interest rates again in May, and the U.S. dollar index has rebounded significantly, rising from 101.6 in early April to 104.2 in early June, an appreciation of about 2.6%. However, in mid-June, the Federal Reserve suspended interest rate hikes, causing the US dollar index to fall sharply to 102.1. The currencies of developed economies such as the euro and the British pound showed a slight upward trend. The monetary policies of Japan and the United States continue to diverge, which has led to a widening of the interest rate differential between the United States and Japan. The yen has continued to depreciate against the dollar, down 5.3% from the end of the first quarter of 2023.
Looking forward to the trend of the global exchange rate market in the third quarter of 2023, the US dollar index will remain at a high level, and the exchange rate of the euro is expected to rebound. In the third quarter of 2023, the rate hike pace of the Fed will directly affect the next direction of the U.S. dollar index, which is expected to operate in the range of 100-105 in general. As inflation in the euro zone is more stubborn, the European Central Bank will further tighten monetary policy, and the tightening will end later than the Fed, so the euro exchange rate may rise and will show a slight upward trend. In the short term, the easing tone of the Bank of Japan’s monetary policy will not change, prompting the widening of the long-term interest rate differential between the U.S. and Japanese treasury bonds, leading to capital outflows, and the exchange rate of the yen against the U.S. dollar may continue to fall slightly and remain in the 140-150 range.
In the stock market, the regional differentiation of the global stock market is obvious, and the low growth prospect leads to insufficient upward momentum.
In the second quarter of 2023, the MSCI global index fluctuated upwards. From the perspective of different markets, developed market stock markets performed better than emerging markets. In the second quarter of 2023, the MSCI developed market index rose by 5.31%, much higher than the 2.49% increase of the MSCI emerging market index. From the perspective of different regions, Asian stock markets rose the most, while BRIC stock markets fell. In the second quarter of 2023, the MSCI Asia Index rose the most, at 4.22%; the MSCI Europe Index rose next, at 1.36%; the MSCI Asia (excluding Japan) Index rose only 0.58%; the MSCI BRIC Index rose slightly. fell, a drop of 0.63%. From the perspective of the development of stock markets in different industries, the MSCI Information Technology Industry Index led the rise, with an increase of 12.96%, and the MSCI Energy Industry Index fell the most. The relationship between market supply and demand is the main factor leading to the downturn in energy stock prices.
Looking forward to the third quarter of 2023, the global stock market will present the following characteristics.
First, the upward movement of the global stock market is insufficient, or it may maintain a volatile pattern. In the second quarter of 2023, as the Fed’s interest rate hike expectations gradually weakened, in the process of global asset allocation, risk asset allocation represented by stocks was strengthened, and the MSCI global index fluctuated upwards, increasing from 776.75 on April 3, 2023 to 813.72 on June 14, 2023, an increase of 4.76%. In the long run, the low-growth outlook still plagues the global economy. Under the circumstances of credit crunch and rising external financing costs, the upward momentum
Second, the performance of global stock markets is divided, and global capital allocation may incorporate more considerations about geo-security, and the decline in corporate earnings has dragged down the performance of US stocks. In the second quarter of 2023, the performance of the global stock market will be divided. The Japanese stock market will rise sharply. The Shanghai and Shenzhen 300 Index and the Hang Seng Index will lead the decline. . In the third quarter of 2023, geopolitical risks will continue to restrain the rise of European stocks. The price-earnings ratio of major U.S. stock indexes exceeds the normal range. The resilience of the job market and recession in economic demand will suppress the revenue performance of U.S. stock companies. The pressure on U.S. stocks may run through the second half of 2023.
Third, the global stock market was led by the information technology sector, while US regional banking stocks were under pressure. In the second quarter of 2023, the MSCI information technology industry index rose significantly, at 12.96%, much higher than the 7.19% of the second-ranked telecom service industry. In the third quarter of 2023, the information technology sector will dominate the trend of the global stock market, and related stock indexes in Japan, South Korea, and the United States, which use information technology as a pillar industry, will lead the world. At the same time, since May 2023, the stock prices of regional banks in the United States have continued to fall, and some banks’ stock prices once plummeted by more than 50%.
In the bond market, looking forward to the third quarter of 2023, the global trend presents the following characteristics.
The first is the negotiation of the US debt ceiling, and the risk of US debt default has been eased in stages.
Since May 2023, the yields of U.S. treasury bonds have been rising rapidly, especially the yields of short-term treasury bonds, which are facing refinancing repayment pressure, have risen rapidly. From May 2 to 26, the yields of US 1-month, 1-year and 10-year Treasury bonds rose by 36 basis points, 51 basis points and 146 basis points respectively. On June 3, 2023, U.S. President Biden signed the “Fiscal Responsibility Act of 2023”, formulating a specific plan to solve the debt ceiling crisis. The negotiation of the debt ceiling has greatly eased the upward pressure on government bond yields. In the third quarter of 2023, the rate of interest rate hikes by the Federal Reserve tends to slow down, the Treasury Department’s short-term debt repayment pressure eases, the supply of U.S. Treasury bonds will further increase, and the upside of U.S. bond yields, especially short-term U.S. bond yields, is relatively limited.
The second is that the upside space for the yields of government bonds in major economies has decreased, and the spread between long-term and short-term terms tends to widen.
Since the second quarter of 2023, the 10-year government bond yields of major economies have shown an upward trend. As of June 14, the 10-year government bond yields of the United States, the United Kingdom, Germany, France and Japan were 3.83%, 4.40%, 2.44%, 2.97% and 0.45%, respectively, which were 35 basis points and 86 basis points higher than the end of the first quarter. basis points, 8 basis points, 17.5 basis points and 5.8 basis points. The spread of risk aversion caused by the US debt ceiling crisis, the rise of benchmark interest rates in major economies, and high inflation levels are the main driving factors for the rise in government bond yields. Affected by rising pessimism about future economic growth, in the third quarter of 2023, the policy interest rates of the United States, the United Kingdom, Germany, and France have narrowed their upward space, and the yield of 10-year government bonds may show a slight upward trend.
In the commodity market, uncertainties in the global energy market still exist, and Europe needs to be vigilant against the resurgence of the energy crisis.
In the second quarter of 2023, the RJ/CRB commodity price index fluctuated downward, and the overall level returned to that before the Russia-Ukraine conflict. Looking forward to the third quarter, the global commodity market presents the following three characteristics.
First of all, OPEC+ has stepped up production cuts, and the bottom of crude oil prices has been supported. Against the background of slowing global economic growth and the continuous spread of the banking crisis in the United States and Europe, the global crude oil market may usher in a pattern of weak supply and demand, but compared with demand, crude oil supply has shrunk to a greater extent.
Second, it is difficult for Europe to fill the natural gas gap, and the energy crisis will continue. Europe’s energy supply is facing challenges again due to high temperature weather, and the growth space for U.S. LNG exports is limited, and Europe cannot make up for the natural gas gap in the short term by seeking new gas sources. Although European TTF natural gas prices have fallen continuously since the end of March 2023, with a cumulative decline of about 30%, the European energy crisis has not been resolved.
Third, the global energy transformation is accelerating, and the demand for key metals in new energy will grow in the long term. The global energy transformation is accelerating, new energy has become the most prosperous industry in the world, and the demand for key metals in new energy has grown in the long term. In the context of carbon neutral policy goals, global investment in clean energy has increased significantly. In 2023, the global investment in clean energy is expected to reach US$1.74 trillion, which is 1.66 times that of fossil fuel investment of US$1.05 trillion, an increase of 22.43% compared with 2021. In the third quarter of 2023, the production and sales of new energy products related to trams, photovoltaics, and wind power will accelerate, driving further growth in demand for key metals in new energy.