In a marked rebuttal to the UK government, this week the UK Chancellor Alistair Darling moved his government’s Autumn Budget to increase tax rates at post-war highs. As Chancellor of the Exchequer Jeremy Hunt called on the public to “keep doing something small to help the economy.” The UK is being hit by an unprecedented economic hurricane. The government is scrambling to find new sources of revenue to offset years of damaging financial constraints.
On the other side of the Atlantic, worries extend to the US economy. Markets are now indicating an 80% likelihood of an interest rate cut in the soon to be convened Federal Open Market Committee (FOMC) meeting scheduled for December. This forecast marks a notable increase from the 60% chance projected just a week prior, reflecting growing concerns regarding economic performance. Analysts point to this change being largely the result of late arriving lagged economic data released after the end of the government shutdown last week.
In Germany the November Ifo Business Climate index plummets to 88.1. This figure missed estimates, which were for 88.5, and was a drop from 88.4 in October. This downturn underscores how stagnant the German economy has become. As measured by GDP, it has stretched out a quarterly GDP growth rate of a paltry 0.0%. Private consumption saw a quarter-on-quarter drop of 0.3%, adding to the conundrum that is Germany’s economic outlook.
Hopes of an eventual rebound in the German economy are still kept alive despite this stagnation. Economists will be watching these developments very closely and will be looking for signs of improvement in upcoming reports.
In China, all eyes now focus on the November Purchasing Managers’ Index (PMI) report. We hope this report will provide insight into the country’s manufacturing and service industries. The euro area’s aggregate inflation print is anticipated to hold steady at 2.1% year-on-year, adding another layer of complexity to the region’s economic outlook.
The confluence of these factors is a powerful illustration of the interdependence of our global economies and the volatility that will always come with it. While each country continues to respond to its respective situation, market participants are on the lookout for signs of easing policy shifts and recovery.