Macro Developments
United States: Resilience, robust consumption, and steady unemployment
In the last quarter of 2023, the US economy surprised by growing by 3.3% (annualized). Over
the course of the year, growth was 2.5%, and consumption remained robust. In January,
expansion was observed according to early company surveys however, weak industrial activity
appeared to be improving. The manufacturing new orders sub-index of the ISM increased to
52.5, the highest level in a year and a half. The US unemployment rate was steady at 3.7% and
the core CPI, the Fed’s favored inflation gauge, returned to 2% on a quarterly annualized basis
in the fourth quarter (dropping to 2.9% on a YoY basis). The anticipation remained regarding
the start date for rate cuts, as Powell indicated that a cut in March was not the base scenario.
Monetary markets foresee easing starting from Q2.
Europe: Stabilization maintained interest rates and unemployment nearhistorical lows.
The eurozone’s activity remained sluggish after the Q4’s GDP slowdown, just averting a
technical recession. January saw a decline in both general and core inflation in the euro area
and December’s UK CPI numbers were disappointing, with core inflation being high at 5.1%.
Switzerland’s inflation rate jumped in December, but it remained below 2%. Both ECB and BoE
left interest rates steady during their first meetings of the year. After Q4’s GDP stagnation, the
euro area’s activity moderated, however, unemployment rate in the euro area continued to
hover around historic lows in December.
ROW: China growth exceeds target, escalation geopolitical tensions.
In 2023, China’s GDP grew by 5.2%, beyond the yearly growth target. By year’s conclusion, general
inflation was still in mild deflation zone, mostly as a result of a further decline in food prices. The
People’s Bank of China reduced its reserve requirement ratio for banks in the face of ongoing
problems in the real estate industry, while the Bank of Japan maintained its reference rate. There
were rumors that Beijing was preparing a package for the stock market amid its persistent
weakness. In the geopolitical sphere, conflict escalated in the Middle East following an attack
on a US military base in Jordan. In Taiwan’s elections, the Democratic Progressive Party remained
in power with little reaction from China.
Market Impact
The US economy continued to fare well in January, and the S&P 500 momentarily reached a new
high. The market was dominated by “growth” and “cyclical” equities. US earnings increased by
0.8% in real terms during Q4, according to data from around 40% of S&P 500 corporations. Public
debt prices moderated in fixed income, with the yield on US 10-year notes momentarily rising to
3.9% and touching 4% intramonthly. Commodity prices generally did not move; however, Brent
crude oil did increase by 6% to $82 per barrel. Gold dropped by 1% even though it was still above
$2,000, while natural gas prices in Europe decreased by 6.5% as a result of the US dollar
strengthening in January.
Our Expectations
Expectations for the US economy foresee a potential recession with weakening indicators across
lending, consumer spending, investment, and corporate earnings, though resilience in labor,
housing, and signs of manufacturing recovery may mitigate severe impacts. Challenges persist in
Europe due to sectoral weaknesses, while emerging markets face hurdles from higher oil prices
and slower Chinese growth.
This Economic Outlook report was prepared by the N PrimePartners Capital Investment team.
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