Economic Highlights

The small 0.1% month-on-month gain in UK real GDP in November 2022, which beat the consensus expectation for a drop of 0.2%, suggests that the worst expectations for economic growth will not be met. Even so, with interest rates still expected to rise further and the lagged effects of past increases yet to be fully felt, we are by no means out of the woods. Bank holidays had distorted several of the previous six months’ data, and so November’s reading was seen as a “clean” one. The services sector was a key driver of the positive surprise, with a boost from the football World Cup being very welcome, although not a lasting one. Also helpful will have been a fall in the cost of fuel, freeing up some spending funds for Christmas. GDP must now fall by more than 0.4% month-on-month in December for the fourth quarter to have been one of contraction. If that is avoided, then the starting clock for a recession (which requires two consecutive quarters of shrinking activity) will reset to the first quarter of 2023.

The much anticipated Consumer Price Inflation print for December 2022 turned out to be something of a damp squib, with both the headline (+6.5% year-on-year) and Core (+5.7%) figures coming in bang in line with expectations. However, with the market in a mood to read anything positive into the data, the strong Shelter component (+0.8% month-on-month) was taken with a pinch of salt as market rental growth is already showing signs of slowing down. The latest University of Michigan Sentiment Survey showed a good bounce in consumer spirits, rising from 59.7 to 64.6. One-year-ahead inflation expectations dropped from 4.3% to 4%, helped by gasoline prices falling from $3.50 per gallon to as low as $3.09 at Christmas.

Better economic data continued to roll out in Europe. The Sentix Investor Confidence survey’s headline reading rose from -21 to -17.5, having been -38 in October. Even during the worst of the Covid pandemic it only got as low as -42. Industrial Production swung back into positive territory in November, rising by 1% month-on-month, having fallen 1.9% in October. Europe’s trade balance was positive from 2012 until the very end of 2021, when the energy crisis began to unfold. It troughed at a monthly deficit of €45 billion in August 2022 when there was a mad scramble to import very expensive Liquid Natural Gas. Although the deficit persists, things are on the mend. The figure was -€15bn in November vs an expected -€21bn.

The final Chinese total social financing (TSF) print of 2022 was a weak RMB1.3trn in December, the weakest print since 2013. For 2022 as a whole, TSF was only marginally higher than that of 2021, which itself was 10 per cent below the 2020 total. This was almost down to ongoing Covid-related restrictions and stress in the real estate sector. In contrast to the TSF situation, money supply in China remains robust (M2 +11.8% year-on-year). Once the economy begins to re-open in earnest, possibly following the imminent Chinese New Year holiday week (beginning 22 January), one might expect credit growth to start to pick up again.