According to Fathom’s Global Outlook, Spring 2024, advanced economies will avoid recession over the forecast horizon (which goes up to the end of 2026), with the global economy showing resilience against inflation and high interest rates. There has however been a divergence in the performance of major advanced economies, which Fathom expects to continue. Looking at growth in real GDP, the US has outperformed both the euro area and the UK, with positive growth recorded in each quarter since 2022 Q3. The euro area and the UK experienced slightly negative growth in 2023 Q3 and Q4. According to the conventional

The recently released IFO survey indicates that Europe’s largest economy, Germany, has continued to weaken after entering a technical recession in the second half of 2023. The headline measure sank in February, with businesses reporting worsening in both current conditions and expectations in relation to future sales. At face value, this implies that the economy has continued to contract throughout the first quarter, albeit at a slower rate than was seen in the second half of 2023. Some of the headwinds the German economy faced last year have abated. Headline inflation dropped from 8.7% in January 2023 to 2.9% in

Nobel Prize-winning economist Paul Krugman recently set out two possible explanations for the recent benign period of disinflation in the US, which has seen inflation fall sharply with no meaningful increase in unemployment. One explanation he labelled ‘long transitory’. This is the argument that the pick-up in inflation, rather than being monetary in nature, was a consequence of supply bottlenecks. These have now resolved themselves and so inflation is falling sharply. This was Mr Krugman’s preferred explanation, and it largely absolves US policymakers of any responsibility for the substantial overshoot of the inflation target. But Fathom prefers Mr Krugman’s second

They have suffered two historic by-election drubbings in Tamworth and Mid Bedfordshire, but with a year still to go until the last possible date for a general election can the Conservatives hope for a political lift from an improving economy? UK headline inflation came in at 6.7% last month, down from its peak and within hailing distance of Rishi Sunak’s promise to see it below 5.3% by the end of the year, but still well above the Bank of England’s 2% inflation target. The Prime Minister currently trails in the polls and is almost certainly hoping that falling inflation will

Is the end of policy hikes around the corner? Potentially, yes, after this week’s rate-setting meetings by two of the largest central banks, the Federal Reserve and the Bank of England. In its meeting on 20 September, the Fed’s Federal Open Market Committee agreed to keep the federal funds rate unchanged in the range of 5.25% to 5.5%. A day later, and following an inflation release that surprised to the downside, the Bank of England’s Monetary Policy Committee too decided to stall its key policy rate, at 5.25%. Refresh this chart in your browser | Edit the chart in Datastream The Fed’s

The ECB announced another hike in interest rates last week, with the main refinancing rate hitting 4.5% and the deposit rate equalling its all-time high of 4.0%. The last time the deposit rate was that high was more than 20 years ago, so soon after the euro’s creation that physical coins were not even in circulation yet. Given the material risks of a recession in the single currency bloc (Fathom judges these to be in excess of 50% over the coming twelve months), the central bank is unlikely to hike much further, and may soon find itself cutting rates. The

The US economy added 187,000 new jobs in August, beating analysts’ expectations. But the report also contained several signs that the labour market is cooling: the unemployment rate increased from 3.5% to 3.8%, wage growth fell, and the three-month, six-month and twelve-month moving averages for monthly job growth all declined. Temporary help services, an indicator which measures the number of workers on short-term contracts, also points to a slowdown, and has now fallen in nine out of the last ten months. Although this indicator gets less attention than others, it can be a useful leading indicator of economic activity. Indeed,

The cost-of-living crisis has yet to trigger a pronounced recession in the world’s leading economies. However, high interest rates to curb inflation are likely to push the euro area into recession in 2024. Another possible effect of higher rates is increased fiscal fragility. As interest rates increase, so does the cost of government borrowing. Loose fiscal policy due to the cost-of-living crisis and COVID-19, combined with increased interest rates to curb inflation, have increased fiscal risk. It is notable therefore that, as can be seen from Fathom’s market-implied probability of default indicators in the chart below, this increased risk does

In Fathom’s Global Outlook, Summer 2023, we changed one of our key calls. We removed a global recession this year from our central scenario. At the time the forecast was finalised in early June, real wages in the US had already started to rise on a twelve-month basis. Our judgement was that this pattern would soon be repeated in the euro area and in the UK. Most major economies had got through the worst of the cost-of-living crisis without entering a period of economic contraction. There were one or two exceptions — the euro area had just suffered two consecutive

According to the flash estimate released on 31 July, the euro area returned to growth during the second quarter of this year, with economic activity increasing by 0.3%. In our latest Global Outlook Summer 2023, finalised early June, we changed one of our key calls and we no longer anticipate a global recession this year. The sharpest falls in real wages are now behind us and, in the US, real wages are rising. With a few exceptions, most major economies look to have navigated through the cost-of-living crisis while avoiding a period of economic contraction. They have dodged one bullet,

Over the past year economic forecasters have repeatedly been surprised by the stubborn refusal of most major economies to enter recession. Looking at results from the monthly Reuters Poll, for example, we find that, regular as clockwork, each time the economic data have been stronger than expected, the consensus has pushed back by one month the point at which it expects the US economy to succumb to a downturn. As the chart shows, during the course of 2022, real wages fell by around 2% in the US, by around 3% in the UK, and by around 4% in the euro

The June CPI data for the UK show a larger than expected decrease in inflation rates, both headline and core. This pleasant surprise in the Office for National Statistics figures sent markets upwards and provided some relief for the UK prime minister whose pledge to oversee a halving of inflation was looking in doubt. But is this the time for optimism yet? How sticky will inflation be in the UK going forward? As the chart below shows, headline inflation — as measured by the 12-month percentage change in CPI — has decreased to 7.9%, down from its October peak of