Morning Market Brief: Friday, May 26, 2023

German economy falls into technical recession?

Gross domestic product (GDP) in Germany, one of the world’s largest economies and largest in Europe, shrank in the first quarter of 2023. The GDP decline pushed Germany into a technical recession (which occurs when an economy has contracted for two straight quarters), adding to the uncertainty surrounding the strength of the global economy. ?

• According to a second and final reading, Germany’s GDP contracted by 0.3% in the first quarter of 2023. A preliminary estimate showed no growth (0.0%) over the quarter.
• With a second consecutive quarterly decline, Germany’s GDP fell into a technical recession. As one of the world’s largest economies, the country’s recessionary environment raised concerns among market participants about the overall health of the global economy.
• The US economy also posted a slowdown in growth over the first quarter. In a second estimate, the US economy expanded by 1.3%, annualized. Despite being revised higher from the initial estimate, it represented a slowdown from the 2.6% growth pace during the previous quarter.
• The outlook for the US economy looks precarious. Lawmakers have yet to agree on the US debt ceiling, with a deadline of June 1 quickly approaching. A lack of a deal could lead the US to default and push the US economy into a recession.
• Canada reports its first quarter GDP on May 31. Canada’s economy posted no growth (0.0%) on an annualized basis in the fourth quarter of 2022.

Slowing economic growth, tighter financial conditions and a lack of an agreement on the US debt ceiling caused much uncertainty among investors. It was evident this week with equity markets seeing periods of significant volatility. Canadian securities markets have not been immune from the impact of this uncertainty. Weaker economic conditions could negatively affect corporate earnings, a key factor in valuating stock prices. But finding strong companies that generate cash through all market cycles can be helpful in withstanding market volatility.?

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