Consumers remain optimistic Retail sales in major economies are showing steady growth despite soaring prices (Chart 1). The Consumer Confidence Index (Conference Board) rose to 114.8 in January from December's revised 108.0 due to rising sentiment in the United States. In contrast, consumer confidence in Brazil has fallen to its lowest level since May 2023, but is still 5.0 points higher than in January 2023.
U.S. retail and food service sales in January were $700.3 billion, down 0.8% from December's $706.2 billion. Vehicle sales in India (consumer sales agency) increased by 37.3% to 393,074 units (286,390 units in December). Passenger car sales hit a record high in January, with sales increasing by about 14% from the previous year. Meanwhile, the official news from China was that consumption during the 2024 Spring Festival holiday increased significantly.
Although the downward trend in inflation rates has stalled in some developed countries, it continues in the euro area. The U.S. consumer price index rose by a seasonally adjusted 0.3% in January, after rising 0.2% in December. The core inflation rate for January was unchanged at 3.9% (annualized). The UK consumer price index also remained unchanged at 4% in January 2024. Similarly, core inflation remained stable at 5.1%. However, the service inflation rate rose from 6.4% to 6.5%. On the other hand, in the euro area, the headline inflation rate in January fell slightly to 2.8% year-on-year (down from 2.9% in December), while the core inflation rate remained high at 3.3% but fell (December's 3.4%). Producer price inflation fell -7.3% in December (-6.5% in November).
The situation across emerging economies is even more diverse. In an extreme example, China aims to combat deflation. Meanwhile, Russia is battling accelerating inflation, with consumer prices rising 7.4% year-on-year in December 2023 and January 2024. In China, consumer prices fell by -0.8% in January (-0.3% in December), dragged down by a decline in food prices (-5.9%). Producer prices fell to -2.5% (-2.7% in December). The situation is more moderate in other regions. In India, the headline inflation rate slowed slightly from 5.7% in December to 5.1% in January, while in Brazil, the inflation rate declined for the fourth consecutive month to 4.51% (4.62% in December).
A February commentary from the International Monetary Fund (IMF) warned that China's real estate recession is entering its third year, with housing starts down more than 60% compared to pre-pandemic levels. According to the IMF, housing declines are occurring at a “historically rapid pace” that can only be seen during the largest housing busts in countries over the past 30 years. Homebuyers are wary of future price declines and that developers lack sufficient funds to complete projects. At the same time, the country's housing market is facing further pressures due to demographic changes and slowing urbanization. The IMF has indicated that housing investment is likely to decline further and remain subdued. According to the analysis, real estate investment could remain 30-60% below 2022 levels in the medium term, and the recovery could remain very gradual.
Prices for most goods continue to moderate, although they remain at high levels compared to pre-pandemic levels. Gold rose steadily in February while energy prices continued to rebound.
Inflation expectations range from 2.0% to 2.5% annually (Exhibit 2).
Interest rates were again left unchanged across developed countries and in India. However, the Brazilian Monetary Policy Committee (Copom) decided to reduce the Selic interest rate by 0.50 percentage points (for the fifth time), reducing the annual rate from 11.75% to 11.25%.
While Europe remains lackluster in terms of growth, Russia presents a surprising picture. According to Eurostat's preliminary estimates, the euro area's GDP will stagnate in the final quarter of 2023, increasing slightly (by 0.1%) both in the previous quarter and year-on-year. As a result, the overall growth rate in 2023 will be 0.6%. However, the situation varies by country and industry. Manufacturing-intensive Germany, which fell into recession in 2023, is performing worse than service-focused countries such as Spain, which grew by 2.5% in 2023. Technological recession: UK quarterly GDP is estimated to have fallen by -0.3% in Q4 2023. For 2023 as a whole, GDP is estimated to have increased by 0.1% compared to 2022. By contrast, preliminary data from Russia shows surprisingly robust results. Her GDP growth rate for 2023 was 3.6%, slightly higher than forecasters expected, although there is wide variation between sources. Recent forecasts suggest that Russia's GDP growth rate in 2024 will slow. In his February forecast of the Central Bank of the Russian Federation, GDP is expected to grow by 1.0-2.0%. The IMF predicts 2.6% and the OECD 1.8%.
Manufacturing and services continue to diverge, with manufacturing in decline in many of the countries surveyed, while services are making a comeback. Among the countries surveyed, the strongest manufacturing economies are in India, Brazil, and the United States, while the sentiment in services is the most upbeat in India, the United Kingdom, Brazil, and the United States.
India's Manufacturing Purchasing Managers' Index (PMI) rose to 56.5 in January 2024 from 54.9 in December, the highest level in four months, supported by new orders and production. Ta. Brazil's manufacturing PMI exceeded the neutral threshold of 50.0 for the first time since August 2023, reaching 52.8 in January (48.4 in December). In the United States, the manufacturing PMI for January was revised upward to 50.7 from the preliminary figure of 50.3 (47.9 in December). In other regions, the situation was less positive. Although China's manufacturing PMI rose slightly in January 2024, it was still in the contraction zone at 49.2 (49.0 in December). The UK's seasonally adjusted manufacturing PMI rose slightly in January to 47.0 (up from 46.2 in December), while the euro area manufacturing PMI fell further to 46.1 (up from 46.6).
The Services PMI has recorded yet another positive figure, with India once again leading the way. In India, where services account for more than 50% of GDP, the services PMI continued its upward trend to 61.8 (revised upward), the highest level in six months. Sentiment in the UK services sector was also positive, with January's PMI reading at 54.3, up from December's 53.4. Brazil's services PMI rose to 53.1 in January (up from 50.5 in December) and the US services PMI rose to 52.5. There were also signs of improvement in the euro area, with the services PMI reaching a neutral level of 50 (up from 48.4), its highest level in seven months. Similarly, China's public services PMI also rose and reached the expansion zone, reaching 50.1 in January (49.3 in December).
In most countries surveyed, unemployment rates were stable or declining. In the United States, the unemployment rate remained unchanged at 3.7% in January, and total nonfarm payrolls increased by 353,000 net new jobs. In the UK, the unemployment rate fell to 3.8% in the fourth quarter of 2023, returning to the same period last year. India's unemployment rate fell to 6.8% in January, the lowest in 16 months (8.7% in December), and Brazil's three-month moving average unemployment rate in December was 7.4% (7.5% in November). It declined slightly to its lowest level. Meanwhile, China's urban employment rate was stable at 5.2% in January (5.1% in December). The youth unemployment rate decreased slightly to 14.6% in January (14.9% in December).
While the United States and India were the best performing stock markets, Europe's STOXX 600 index also hit a record high on February 23 following strong earnings reports. The S&P 500 index rose 1.6% in January, for a one-year return of 18.9%. The Dow Jones rose 1.2% for the month and is up 11.9% in 2023. The Indian stock market continues to trend upwards, with Nifty and Sensex share prices rising by around 2-3% month-on-month. As of February 26, Nifty was up 2.6% and Sensex was up 1.9% (compared to January 22, 2024). In contrast, Brazil's Bovespa stock index fell in January, losing 2.2% in value.
A variety of factors are having a negative impact on global trade, including ongoing conflicts in Europe and the Middle East and concerns about a recurrence of supply chain disruptions. However, world trade volumes increased by 1.0% in December, increasing across all flows and economies. Overall in 2023, China's trade growth slowed, with exports down -4.6% (up 6.9% in 2022) and imports down -5.5% (up 1.0% in 2022). For various reasons, Russia's exports in 2023 decreased significantly due to Russia's international economic isolation and the impact of sanctions. Last year, exports accounted for just 23% of gross domestic product (GDP), the lowest share on record. In the United States, exports in December reached $258.2 billion, an increase of $3.9 billion from November, and imports also increased to $320.4 billion (an increase of $4.2 billion from November), resulting in a 0.5% increase in the total deficit. increased to $62.2 billion. India's merchandise exports reached USD 36.9 billion in January 2024, registering a year-on-year growth of 3.1%. Merchandise imports also expanded after contracting in the past two months, increasing by 3.1% year-on-year to US$54.4 billion. The merchandise trade deficit narrowed to USD 17.5 billion in January 2024, the lowest level in nine months. Brazil recorded a surplus of USD 6.5 billion in January, with total exports of USD 27 billion (USD 28.8 billion in December) and imports of USD 20.5 billion (USD 19.5 billion in December).
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