The International Monetary Fund believes “the clouds are beginning to part” and expects the global economy to achieve a soft landing, underpinned by lower inflation and steady growth, although it remained cautious over the impact of shipping disruptions in the Red Sea and the ongoing war in Ukraine.
- The Fed and ECB left interest rates unchanged
- The eurozone’s economy stagnated in Q4 2023
- The Nikkei 225 Index hit levels last seen in February 1990
Cautious optimism from the IMF: the International Monetary Fund (IMF) believes “the clouds are beginning to part” and expects the global economy to achieve a soft landing, underpinned by lower inflation and steady growth, although it remained cautious over the impact of shipping disruptions in the Red Sea and the ongoing war in Ukraine. The IMF upgraded its forecasts for global economic growth from 2.9% to 3.1% this year and called on central banks to prioritise price stability.
“We’re wanting to see more data” (Fed Chair Jerome Powell)
Fed remains hawkish: US share prices rose during January, stoked by a strong performance from the technology sector and by mounting hopes that interest rates might start to decline. However, investors’ optimism was checked at the end of the month by a hawkish tone from the US Federal Reserve (Fed). As expected, Fed policymakers left the key interest rate unchanged at 5.25% to 5.5%; nevertheless, officials played down any prospect of a rate cut in March, with Fed Chair Jerome Powell commenting: “We’re wanting to see more data”. The rate of consumer price inflation in the US rose from 3.1% to 3.4% year on year in December, and a rate cut now appears to be more likely in the second quarter. The Dow Jones Industrial Average Index rose by 1.2% over January as a whole.
Germany on the edge? The eurozone’s economy flatlined during the final three months of 2023, narrowly avoiding recession after a third-quarter contraction of 0.1%. Germany’s economy contracted by 0.3% during the fourth quarter, intensifying concerns over the prospect of recession in Europe’s largest economy. The annualised rate of eurozone inflation rose by 2.4% to 2.9% during December, fuelled by higher energy costs. However, core inflation eased from 3.6% to 3.4% year on year.
Caution in Europe: the European Central Bank (ECB) sounded a cautionary note over the region’s growth prospects, warning of a possible recession in the second half of 2023 and “weak prospects for the near term”. ECB policymakers left interest rates unchanged at their January meeting. The Dax Index rose by 0.9% during January.
Strong yen supports Japanese exporters: Japan’s benchmark Nikkei 225 Index reached its highest level since February 1990 during January, pushed up by a weak yen and strong performance from US technology stocks. During January, the Nikkei 225 Index rose by 8.4%.
To view the series of market updates through January, click here