Today's economic figures paint a bleak picture

EU slashes growth forecasts for Euro Area

The European Union has downgraded its growth projections for the Euro Area as Japan and the UK grapple with unexpected recessions, casting a shadow over global economic prospects. Japan's economy slipped into recession following a fourth-quarter contraction of 0.4%, prompting a reevaluation of the likelihood of a Bank of Japan rate hike by April, as indicated by overnight swaps. Similarly, the UK economy fell into recession with GDP shrinking by a greater-than-forecasted 0.3%. Adding to the economic gloom, the European Commission has revised downwards its growth forecasts for both this year and the next.

The EU has revised its GDP projection for this year to 0.8%, a significant drop from the 1.2% forecasted in November. Furthermore, the outlook for 2025 has been adjusted to 1.5%, down from the previous estimate of 1.6%. French Finance Minister Bruno Le Maire has announced plans to revisit the official growth forecast in the coming days.

In the midst of these economic challenges, Christine Lagarde, President of the European Central Bank, highlighted the increasing significance of rising salaries in determining the timing of potential rate adjustments. While economic data continues to indicate robust pressures, Lagarde noted some indications of stabilization in the last quarter.

UK policy to remain restrictive despite recession concerns

Despite the UK economy slipping into recession, as evidenced by a 0.3% contraction in Q4 GDP, Bank of England member Greene maintains that interest rate policy should remain restrictive for the foreseeable future. Greene emphasized the persistence of UK inflation compared to that of the US, cautioning that market pricing of rate paths may not accurately reflect this.

Greene stressed the need for further evidence suggesting a less embedded inflation persistence before considering any policy loosening measures.

US retail sales plummet beyond expectations

In a further blow to global economic sentiment, retail sales in the US plummeted by 0.8% month-over-month in January 2024, marking the largest decrease since March of the previous year. This decline, worse than market forecasts of a 0.1% fall, comes on the heels of a downwardly revised 0.4% rise in December. The contraction in retail sales during January is a typical trend following the holiday shopping season's strength in December.