German, euro area economic sentiment slides further into negative territory
German and euro area economic sentiment continues to decline, raising concerns about the state of the economy. The ZEW German economic sentiment indicator fell to -14.7 in July, from -8.5 in June. This figure is below the consensus projection of -10.5, according to a Reuters poll. Similarly, economic expectations in the wider euro area dropped from -10 in June to -12.2 in July. These numbers indicate a worsening outlook for both German and euro area economies.
This decline in economic sentiment comes amid ongoing concerns about the impact of global trade tensions and slowing economic growth. The uncertainty surrounding Brexit is also likely contributing to the negative sentiment in the euro area.
The weakening economic sentiment has already had an impact on the financial markets. Stock prices have reacted accordingly, with British online grocer Ocado seeing a 4% increase in early trade, while British powder metallurgy company Dowlais Group experienced a more than 7% decline after Citigroup initiated its coverage of the stock with a “sell” rating.
In the United Kingdom, the Office for National Statistics revealed that wages, excluding bonuses, grew at their joint-fastest rate on record in the three months to May. Wages rose by 7.3% from the same period last year. However, concerns remain about the strength of earnings and its impact on inflation. The Bank of England has repeatedly warned that high wage growth hinders efforts to lower inflation. This record high wage growth puts additional pressure on the central bank to consider tightening monetary policy.
Despite these challenges, there are positive signs for the global markets. European stocks opened in positive territory on Tuesday, following gains in Wall Street and the Asia-Pacific region. This market performance demonstrates resilience amid ongoing uncertainty and volatility.
Looking ahead, market strategists have differing views on the outlook for the rest of 2023. Some are optimistic and expect stocks to continue rallying, while others are more cautious and anticipate a decline of 10% in the S&P 500 by the end of the year. Key market risks and how investors should position themselves were also discussed.
Additionally, major central banks in Asia could start diverging from the Federal Reserve’s tightening cycle due to different macroeconomic conditions in the region. Nomura economists predict that Asian central banks may cut policy rates ahead of the Fed, reflecting the divergences in the Asian and U.S. economies.
Meanwhile, China is taking steps to support its real estate market. The People’s Bank of China announced that it will extend two financial policies until the end of 2024. These policies aim to provide support to real estate enterprises and ensure the delivery of housing projects.
Overall, the global economy faces significant challenges and uncertainties. The declining economic sentiment in Germany and the euro area, along with other factors such as trade tensions and Brexit, will continue to impact financial markets and investor confidence.