News

The Global Economy is in a different place than was forecast earlier this year. As an example, it was predicted that the Chinese economy would recover quickly as China moved away from the zero covid policies; however, growth in China has stalled. Foreign investment has fallen, the property crisis is worsening and youth unemployment has grown to 21.3%. China has now suspended providing this information which has set alarm bells in motion. Australia’s economy is highly connected to Chinese growth; therefore it is closely monitoring the situation, worried that economic weakness there could have a negative effect on the Australian economy.

In the USA, mortgage rates have reached 7.23% which is the highest since 2001. Existing home sales fell for the 4^th time in 5 months and the Federal Reserve has signalled it is in no rush to loosen monetary policy and reduce interest rates again. In the USA manufacturing is weakening, consumer spending is slowing and credit is tightening, all of which were expected due to the rising interest rate. On the other side of this, gross domestic product (GDP) is still expanding well above what the Federal Reserve was expecting. Jerome Powell, the US Federal Reserve Chairman, advised that although inflation has fallen from it’s peak it remains too high and they are prepared to raise interest rates further if deemed necessary. The US economy has been more resilient than expected which means that higher rates for longer might be needed to cool the economy to bring it back to its 2% inflation goal.

In the Eurozone sharp contractions in business activity are pointing to deepening economic pain. It is unknown if the ECB will increase interest rates in September or if they will pause increases for now. Eurozone money supply has shrunk for the first time since 2010 as private sector lending stalls and deposits decline in a financial squeeze that economists warn points to a further downturn ahead. The benefit of this is that slower economic activity should result in falling inflation. Inflation in the Eurozone was 5.3% in July. The German economy stagnated in the 2^nd quarter which means it is one of the world’s weakest economies. The outlook for Germany (which is the biggest economy in the European Union) is not great with weak purchasing power, lower manufacturing, tightening monetary policy and the slowdown of the Chinese economy all impacting it’s growth.

In the United Kingdom PMI figures were 47.9 in August, down from 50.8 in July. The PMI Index is used as one of the most reliable indicators for assessing the state of the economy. A PMI reading over 50 indicates growth or expansion of an economy and a reading under 50 means contraction of the economy. These figures will be dissected by Bank of England policymakers as they decide whether to increase interest rates for the 15^th consecutive time or to stop raising rates.

The world is at a point of economic uncertainty with some positive indicators such as the strength of the US economy and other negative indicators such as interest rates staying higher for longer and the weakening manufacturing. Not to mention the ongoing Russia/Ukraine war which remains uncertain! It is also unclear what is going to happen with interest rates going forward and if Central Banks believe that their role in fighting inflation is complete.

Now would be a good time to arrange a meeting with your Financial Advisor to review any current policies you have as well as revise your plan for the future.

Marie Carr, CFP^® MSc BBS QFA RPA SIA is a CERTIFIED FINANCIAL PLANNER™. You can contact her through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on marie@jfl.ie