Global economic activity has been exceeding expectations for much of the past six weeks, though only modestly in the latest week at plus 6 on Econoday’s Relative Performance Index (RPI). Even so, extended outperformance would continue to prompt more cautious views for prospective rate cuts in 2024.
In the Eurozone, signs of an unexpectedly large improvement in economic sentiment combined with a surprisingly tight labour market to ensure that the RPI at 14 and at 28 when excluding prices (RPI-P) remained above zero. Economic activity in general is still weak but, if sustained, positive readings here will give the European Central Bank more time to ponder when to cut key interest rates.
In the UK, a string of surprisingly upbeat data was enough to lift the RPI to 21 and the RPI to 16. Recession at the end of 2023 remains a possibility but is now less likely, a development that will bolster the likelihood of a steady Bank Rate at the Bank of England’s meeting next month.
In Switzerland, a mixed period for economic data left the RPI at minus 8 and the RPI-P at 6, indicating that activity is progressing broadly in line with forecasts.
In Japan, another surprisingly weak month for household spending helped to pull down the RPI to 18 and the RPI-R to 25 respectively. Still, both measures remain above zero which will underpin speculation that some form of monetary tightening is not too far away.
In China, further evidence of deflationary pressures saw the RPI slide to minus 14 and the RPI-P to minus 10. Despite the occasional blip into positive surprise territory, both measures have spent much of the last few months sub-zero, warning that the authorities may have more work to do to get underlying economic momentum building again.
In Canada, the RPI (minus 19) and RPI-P (minus 39) signaled increasing underperformance as both gauges dropped to their lowest level since mid-August. Current readings will fuel speculation that the slowdown in economic activity will be sharper than officially forecast leaving the Bank of Canada as a prime candidate to be among the first of the major central banks to cut interest rates in 2024.
But for the US, the Federal Reserve does not look to be among the first to cut rates. The country’s 19 overall score and 26 score when excluding prices make the start of 2024 look like much of 2023, tangible outperformance.