Following two consecutive quarters of GDP declines, in Q4 2022 and Q1 2023, Germany exited recession in the most muted fashion possible by posting flat GDP growth in the second quarter of 2023. With little cause for celebration the Bundesbank warned of “hesitant” growth for the remainder of the year with the economy held back by weak foreign demand and higher domestic financing costs. Not great news from the Eurozone’s largest economy but offset by more encouraging data points elsewhere such as from France and Spain where GDP growth remained healthily positive and in excess of analysts’ forecasts. For both France and Germany, the news was also good as far as inflation was concerned with June’s data showing a continued decline in the rate of price increases. Spain bucked the positive trend but at an annualised rate of 2.1% the country remains close to the ECB target for the overall European economy of 2%.
None of this stopped the ECB from raising rates for a 9th consecutive time at their meeting toward month end and nothing in the accompanying commentary suggested that was the end of the tightening process. In the US, the Federal Reserve followed a similar path raising rates, now for 11 times since March 2022, with, again, some mixed signals underpinning the decision. Not least was the jobs data where the privately generated ADP non-farm payrolls report indicated a very robust market with close to 500 thousand jobs being added in June. This was subsequently contradicted by the official figures which suggested a considerably more muted increase. Whatever the case, none of the data points, including slowing CPI, which at 3% was the smallest advance in 3 years, were sufficiently weak to stop the Fed acting.
Inflation continued to pose a very different problem for the Chinese authorities as it remained stubbornly low, with some commentators pointing to the risk of deflation. The last time this all-important economy was faced with similar problems was in 2009 and that led to a $553bn stimulus programme. The much-anticipated Politburo meeting in July did confirm that policy action would be forthcoming this time around, but detail was lacking making any conclusions difficult to draw. What was more conclusive was the Chinese authorities’ decision to restrict exports of certain rare raw materials including gallium and germanium, both crucial for semi-conductor production. The impact on the sector, already reeling from a cautious statement from industry heavyweight TSMC, was harsh and sours further the relationship between China and the West while at the same time highlight the complex dependencies of the varied economies and their commercial relationships.