Return to Insights

Germany Enters Technical Recession

The latest data from Germany indicates that their economy contracted 0.3% during the first quarter of 2023. Given that this follows a contraction of 0.5% seen over Q4 2022, Europe’s largest economy is now in a technical recession.

The contraction comes as household consumption fell by over 1% as the rising cost of living squeezed household budgets – particularly for new cars given the annulment of some government grants. The fall in German industrial production also saw its largest drop in over a year for the month of March, due to weak performance in the automotive sector. The first three months of the year also saw government spending fall close to 5% as energy subsidies subsided. Concerns over stagflation will be circulating through Frankfurt and Berlin, given that inflation is currently at 7.2% and growth remains negative.

Changing Lanes in Global Car Production

As alluded to above, German car production has been under pressure with the number of cars produced falling from 434, 962 units in March to 321,000 Units in April. This comes as the tides turn in car production around the world, with China recently overtaking Japan as the world’s top car exporter. (And just last year, China overtook Germany as the world’s second largest car exporter). Last week, official figures from Beijing indicated that China exported 1.07 million vehicles over the course of Q1, a gargantuan 58% increase from Q1 2022. Much of this rise in production is thought to have come from a rise in demand for electric cars going to Russia, a country whose car industry has been hit by Western sanctions. As Reuters notes: “Several Russian auto makers suspended production for periods of last year as the industry struggled to source parts and establish new supply chains following the imposition of the sanctions over Moscow’s military actions in Ukraine.”

China has seen the demand for new EV’s rise significantly as the world’s second largest economy tries to decarbonise areas of its economy. Demand for these cars abroad has also lifted production, and Tesla have been amongst some of the big names to invest in China, having built a manufacturing plant in Shanghai which exports cars to places such as Europe and Japan.

Debt Ceiling Concerns Raised

With the world’s largest economy being just days away from the prospect of X-date, tensions on Capitol Hill are growing. As looked at earlier this week, X-date the date which denotes the date at which the US will have breached their debt ceiling and given outstanding obligations, would be in technical default. While President Joe Biden and House Speaker, Kevin McCarthy have held “productive” discussions given that no agreement has been reached, analysts are raising their expectations of X-date being realised. For example, Michael Feroli, JPMorgan’s chief US economist said that “we still think the most likely outcome is a deal signed into law before the X-date, though we see the odds of passing that date without an increase in the ceiling at around 25% and rising”. With such concerns rising, Fitch Ratings have warned that the US’ AAA rating is under threat due heightened uncertainty over a deal being reached.

Fed Minutes

With money markets currently pricing in around a 30% change of the Fed raising rates by a further 25bps, the release of the FOMC’s minutes has illuminated the split amongst policy makers. For example, various FOMC committee members evidently favour a June pause with the minutes stating that “several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary”. Meanwhile, the minutes also indicated that “many participants focused on the need to retain optionality after this meeting” and thus their view on whether to raise rates or pause will be driven by recent data. As such, all eyes are on the Fed’s interest rate decision on 14 June and whether they will pause or raise their hiking cycle, where the base interest rate stands at 5.25%.

Ready to talk FX?

Get in touch with one of our friendly and knowledgeable experts to see how FX strategy can drive commercial impact in your business.

Contact us


Find out how we have helped our clients meet their hedging requirements.

Putin’s Pyongyang Pact

Thought for Thursday, strategic agreement signed by Putin and Kim Jong Un, Bill Gates develops his nuclear reactor company, TerraPower, and release of BoE policy rate today.

UK Inflation Eases to BoE Target, But Challenges Remain

Word of the week Wednesday, UK inflation falls to BoE's 2021 target, May 2024 reported as warmest May on record, and lower-than-expected US retail sales.

RBA Hold Rates for a Fifth Consecutive Time

Travel Tuesday, benchmark rate remains unchanged by RBA, rising wage growth across the continent, rising oil prices, and Farage announces Reform 'contract'.

French Election Special

Macro Monday, first official day of campaigning in France, RN party's fiscal plans leaves markets considering implications, political and economic uncertainty leaves French stocks under pressure, and what's happening this week.

Labour Release Manifesto

Friday feeling, yesterday's release of the Labour party manifesto, introduction of National Wealth Fund under a Labour government, and additional funding for Ukraine from G7.

Fed Issue Forward Guidance as Policy Makers Hold Rates

Thought for Thursday, benchmark policy target rate maintained by the Fed, signs of more easing than expected for US inflation, and today's events.

Conservatives Reveal Manifesto Ahead of Labour’s Launch Today

Word of the week Wednesday, manifesto from the Conservative party released yesterday at Silverstone, Labour party manifesto set to release today after making criticisms, data shows sharp decline

In Focus: America’s TCJA

Travel Tuesday, focus turns to the Tax Cuts and Jobs Act as the US election draws closer, UK unemployment data, and wage growth comes in marginally higher than expectations in the UK.

Ready to talk FX?
Get in touch today to see how FX strategy can drive commercial impact for your business.
Contact us