Global economies performing as expected; relative performance index at plus 1

Econoday’s aggregate Relative Performance Index ended the December 15 week at plus 1, very near the zero line for a third week in a row to indicate that global economic data, on net, are hitting consensus forecasts.

Economic activity in the Eurozone is running a little behind market expectations, at minus 15 and at minus 18 less prices (RPI-P). The zone’s economy has lagged forecasts since early October which has supported market expectations for rate cuts in early 2024. Indeed, the latest disappointingly weak data have significantly increased the likelihood that the Eurozone will close out 2023 in recession.

In the UK, a string of surprisingly soft data saw this country’s RPI slump to minus 25 and the RPI-P to minus 33. Even so, with signs of a surprisingly strong economy in December and additional evidence of sticky inflation in services, the Bank of England’s decision to leave Bank Rate on hold looks likely to be repeated over the early months of 2024.

In Switzerland, the RPI now stands at 4, indicating that economic activity in general is essentially moving in line with market expectations. However, excluding the surprising weakness of prices, at 35 the RPI-P shows the real economy running a good deal hotter. Such a combination helps to explain why the Swiss National Bank opted to leave policy on hold last week.

In Asia, the Japanese RPI climbed to 13 and the RPI-P to 30, both measures showing overall economic activity running ahead of forecasts. However, recent data have been mixed enough to leave financial markets still uncertain about when the Bank of Japan will finally abandon its ultra-loose policy stance.

In China, a mixed period for economic news left the RPI at 7 and the RPI-P at a relatively solid 30. That said, the recovery is still fragile and pressure remains on the authorities to stimulate growth and mitigate ongoing deflation risks.

The US and Canada ended the week at plus 1 and plus 3 and very near the zero line to indicate that recent data for both countries, on net, are hitting Econoday’s consensus forecasts. If economic data for the two continue to unfold as expected, then core inflation for both should continue to cool in turn raising the heat for rate cuts at both the Federal Reserve and the Bank of Canada.