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Global Economic Update: A Tale of Contrasts and Consumer Resilience 📈

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Introduction

The global economy witnessed significant developments last week, with the US leading the charge in consumer spending, while Europe and Asia faced their own unique challenges. What Happened Last Week?

United States:

  • E-commerce Sales Surge: US online sales hit new records during Black Friday and Cyber Monday.

  • Fed's Interest Rate Outlook: The OECD predicts the Federal Reserve will maintain higher interest rates longer than anticipated.

Europe:

  • ECB's Banking Warning: The European Central Bank highlighted rising risks in the banking sector.

  • Eurozone Lending and Inflation: Bank lending to businesses fell, and inflation dropped more than expected.

Asia:

  • China's Economic Contraction: Business activity in manufacturing and services sectors shrank in November.

What does all this mean?

US Consumer Spending Surges

  • Record Online Sales: US online sales reached new heights during Black Friday and Cyber Monday, with Black Friday sales hitting $9.8 billion and Cyber Monday sales reaching $12.4 billion.

  • Cyber Week Success: The entire Cyber Week generated a total of $38 billion in sales, marking a 7.8% increase from the previous year.

Global Economic Outlook by OECD

  • Interest Rate Projections: The OECD predicts that central banks in the US and Europe will maintain higher interest rates for longer than anticipated, with rate cuts expected in the US in late 2024 and in Europe by spring 2025.

  • Economic Growth Concerns: This outlook is based on current inflation pressures and some of the weakest economic growth rates since the global financial crisis.

European Central Bank's Stability Review

  • Banking Stress: The ECB's review indicates early signs of stress in the region’s banks, with an increase in souring loans and overdue payments.

  • Economic Impact: There's concern that the ECB's interest rate hikes are beginning to restrict the region’s economy, potentially leading to a downturn.

Eurozone's Inflation and Lending

  • Inflation Slowdown: Inflation in the eurozone fell to 2.4% in November, the smallest increase since July 2021.

  • Lending Contraction: Bank lending to non-financial corporations in the eurozone shrank for the first time since 2015, and lending growth to households also slowed.

China's Economic Activity

  • Manufacturing and Services Contraction: Business activity in both sectors shrank in November, with the manufacturing PMI falling to 49.4 and services activity contracting for the first time this year.

  • Government Efforts: Despite government measures to boost growth, the economy is losing momentum.

Focus on the US Consumer

  • Spending Resilience: Despite high inflation and interest rates, US consumers demonstrated strong spending, particularly in online sales.

  • Credit and BNPL Usage: There's a notable increase in the use of "buy now, pay later" options and credit card spending, raising concerns about consumer debt.

The Week Ahead

  • Monday: Eurozone sentix economic index (December), US factory orders (October).

  • Tuesday: US job openings and labor turnover survey (October), eurozone producer price index (October).

  • Wednesday: Eurozone retail sales (October), US trade balance (October), Bank of Canada interest rate announcement.

  • Thursday: China trade balance (November).

  • Friday: China loan growth (November), US labor market report (November), Japan household spending (October).

  • Saturday: China inflation (November).

Conclusion

The recent surge in US consumer spending, especially in online sales, contrasts with the cautious economic outlook in Europe and the slowdown in China. The resilience of US consumers is a key factor in the country's economic performance, but rising debt levels and the use of credit options like BNPL raise concerns about long-term financial stability. As central banks navigate through inflation and growth challenges, the global economic landscape remains complex and interconnected.

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