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Global economic indicators are looking up, but inflation remains

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Downs and ups

In the news

•

Save now, spend later. That sigh of relief you hear? That may just be European consumers reacting to plunging oil and natural gas prices. A barrel of oil today costs about a third less than it did in the middle of last year, and Europe’s natural gas bill is down about 90% since last summer. In the US, lower gas prices are having a similar pocket-refilling effect on households. All this upside may have a downside, however: more money in people’s wallets can lead to more consumer spending, which can lead to inflation, signaling a need for more interest rate hikes. [WSJ]

•

No landing? There’s more to cheer in the global economy than there was a few months ago, due to China’s reopening, Europe’s oil and gas crisis easing, and US consumers turning the spending spigot back on. So why are markets looking so glum? Some investors fear that persistent inflation—and accompanying central bank rate hikes—mean that a soft landing isn’t what’s in store. Instead, there may be a “no landing” scenario, whereby inflation and rate hikes continue depriving investors of a good reason to take on equity or bond risk. [Reuters]

While some economic data run counter to predictions of recession made at the end of 2022, stop-and-go financial markets and corporate belt-tightening attest to CEO and investor uncertainty.

On McKinsey.com

•

Blasting the furnace. Senior partner Sven Smit and his fellow authors report that the global services sector is heating up. In the US, positive retail sales totals and strong job growth suggest a stronger business environment in early 2023. In China, after the lifting of “zero COVID” closures, the nonmanufacturing purchasing managers’ index (PMI) rose to 56.3 on higher services and construction activity. And over in the eurozone, services growth pushed the PMI for manufacturing and services to 52.6 in February, the highest mark recorded since May 2022. Other strong economic indicators include China’s PMI for manufacturing, which reached 52.6 in February, the highest reading in more than a decade. Globally, equity indexes in the developed economies—especially Europe—have been gradually recovering in the new year .

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Blasting the air conditioning. At February meetings, the US Federal Reserve raised its rate to 4.5–4.75%, the European Central Bank to 2.5–3.0%, the Bank of England to 4.0%, and the Reserve Bank of India to 6.5%. In some countries, the figures are far starker: Brazil’s policy interest rate is 13.75%, and its inflation target is 3.75%. Further hikes in 2023 are expected for many of these economies. Yet consumer and producer price inflation remains high, leading to corporate belt-tightening and jerky financial markets. See McKinsey’s “Global Economics Intelligence executive summary, February 2023” for a deeper dive into the world’s economic panorama.

Examine global economics

— Edited by Katy McLaughlin, senior editor, Southern California

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by "McKinsey On Point" <publishing@email.mckinsey.com> - 10:13 - 18 Apr 2023

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Global economic indicators are looking up, but inflation remains

Downs and ups

In the news

While some economic data run counter to predictions of recession made at the end of 2022, stop-and-go financial markets and corporate belt-tightening attest to CEO and investor uncertainty.

On McKinsey.com