Daily Update: Economic Optimism Follows Annual Meetings in Davos
Today is?Thursday, February 9, 2023, and here’s your?curated selection of essential intelligence on financial markets and the global economy?from?S&P Global. Subscribe?to be notified of each new?Daily?Update.?
As world leaders, business executives and celebrities jetted home from the World Economic Forum in Davos, Switzerland, a sense of renewed optimism seemed to take hold among those charged with forecasting the global economy — including economists from S&P Global.??
“The?macro mood has taken a positive turn post-Davos, reflecting relief over the resilience of the European economy and optimism over China's early exit from its zero-COVID policy, relaxing the reins on economic activity,” wrote S&P Global Ratings Chief Economist Paul Gruenwald.?
Consumers, few of whom sampled the fine wines served at Davos, also showed more buoyant attitudes about their prospects for 2023: The University of Michigan Consumer Sentiment Index rose sharply month over month to 59.7 in December 2022 from 56.8.
Recent positive signals are driving the upbeat mood. The Purchasing Managers’ Index from S&P Global, which is based on data provided by over 30,000 companies worldwide, rose for the second straight month in January,?reaching a six-month high of 49.8?and bringing “encouraging news of a stabilization of the global economy, … calming recession worries in the U.S. and Europe.”
The labor market, meanwhile, continued its surprising resilience even as major technology companies such as Google, Amazon, Dell and Salesforce laid off thousands of workers: The U.S. unemployment rate?fell to 3.4% in January?as total U.S. employment?reached pre-pandemic levels.
Still, “the global economy is certainly not out of the woods,” Gruenwald said.
Inflation, which the U.S. Federal Reserve and other central banks have battled with aggressive interest rate hikes over the last 12 months, remains stubbornly high. And?other key indicators continue to flash red. “Key yield spreads are signaling that a U.S. recession is more likely than not over the next 12 months,” S&P Global Ratings U.S. Chief Economist Beth Ann Bovino wrote. “For example, our quantitative assessment of recession risk, when using the 10-year/three-month spread, puts the probability of recession at 59%.”
Eight of the 10 leading U.S. indicators tracked by S&P Global Ratings were negative or neutral last November, and none of those with available year-end data shifted their signal in December 2022. Since 1980, a recession has followed within 12 months when half of those indicators have been negative.?
While economic headwinds remain stronger than tailwinds, the economic outlook has perceptibly brightened since the start of the year. Perhaps the two most significant developments are that inflation, while still high, has begun to cool as tighter central bank policies take effect, and that China’s earlier-than-expected?lifting of COVID-19 restrictions?will probably boost the world’s second-largest economy.?
World real gross domestic product is now?forecast to expand by 1.9% in 2023, according to Sara Johnson, executive director for economic research at S&P Global Market Intelligence — below 2022’s 3.0%, but well above previous predictions of a global contraction.?
“Recessions in Europe and the United States will likely be milder than previously expected and mainland China's acceleration will be quicker following the abrupt end of its COVID containment policies,” Johnson wrote. “With supply conditions improving and price inflation on a downward path, the risk of a global recession — defined as an annual decline in real per capita GDP — has diminished.”?
Today is?Thursday, February 9, 2023, and here is today’s essential intelligence.
Written by Richard Martin.
Economy
Wage Growth Cools As Labor Market Softens Further In January, But Jobs Outlook Brightens
The U.K. labor market remained soft at the start of 2023, according to survey data compiled by S&P Global, with employment coming under pressure from weak demand for staff from employers. The number of people placed in permanent jobs fell for a fourth month in a row in January as a result. Staff availability issues also showed further signs of alleviating, helping to bring permanent staff wage growth down in line with the average seen in the five years leading up to the pandemic. Whether the labor market continues to cool remains uncertain, however, as a jump in business confidence tracked by the PMI surveys suggests that hiring could revive in the coming months, thereby putting renewed upward pressure on wages.
—Read the article from?S&P Global Market Intelligence
Capital Markets
Israeli Banks 2023 Outlook: Rising Risks Are Well Contained
S&P Global Ratings believes Israeli banks will benefit from the economy performing better than that of most global peers, despite a slowdown in 2023. Default rates are likely to rise over the next year, albeit to relatively low levels, as customers’ repayment ability could be pressured. Banks’ underlying profitability is solid, due to efficiency improvements and rising interest rates.
—Read the report from?S&P Global Ratings
Global Trade
Fujairah Data: Oil Product Stockpiles Hit Nine-Month Low As Imports Slow
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Stockpiles of oil products at the UAE's Port of Fujairah dropped another 7.3% in the week ended Feb. 6 with middle distillates such as jet fuel and diesel extending their shrinkage to 48% in the past three weeks, according to Fujairah Oil Industry Zone data published Feb. 8. Total inventories were 17.624 million barrels as of Feb. 6, a nine-month low, the FOIZ data provided exclusively to S&P Global Commodities Insights on Feb. 8 showed. Middle distillates tumbled another 26% to 1.73 million barrels, the lowest since May 16. Middle distillates have dropped three weeks in a row and are down 44% since the end of 2022.
—Read the article from?S&P Global Commodity Insights
Sustainability
Sustainable Bond Issuance Will Return To Growth In 2023
S&P Global Ratings believes in 2023, global green, social, sustainable, and sustainability-linked bond (GSSSB) issuance will return to growth, reaching $900 billion-$1 trillion, nearing the record $1.06 trillion in 2021. This follows a 2022 in which contractionary monetary policy and macroeconomic uncertainty pulled down global bond issuance. Three factors could drive growth or drag it down. Broadly, these are policy initiatives, levels of investment in climate adaptation and resilience and the ability of issuers to address concerns about the credibility of certain types of GSSSB debt.
—Read the report from?S&P Global Ratings
Energy & Commodities
Solar To Dominate 2023 U.S. Additions After Supply Chain, Pandemic Disruptions
Solar-powered generation will account for more than half of the 54.5 GW of new utility-scale electric generating capacity expected this year across the U.S., the U.S. Energy Information Administration said Feb. 6. Most of the new solar capacity will be in Texas, where 7.7 GW is expected to come online, followed by California with 4.2 GW, the EIA said. Combined, those two states will account for 41% of planned new solar capacity this year. However, "there's some uncertainty about how much of what is planned will be completed this year," said Morris Greenberg, senior manager of North America power analytics with S&P Global Commodity Insights.
—Read the article from?S&P Global Commodity Insights
Technology & Media
2022 Box Office Recap: Domestic Box Office Back To Late '90s Levels
The domestic box office recovery from the COVID-19 pandemic continued throughout 2022 but has yet to return levels comparable to the 2015-2019 period when total gross was more than $11 billion. Total 2022 domestic box office increased 69.3% from nearly $4.33 billion in 2021 to $7.32 billion. The annual total is more akin to the totals of $7.73 billion in 1999 and $7.55 billion in 2000. The year started out promising with spring season box office increasing 376.3% from $422.9 million in 2021 to $2.01 billion in 2022.
—Read the article from?S&P Global Market Intelligence
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