Shooting Stars

Image source: Asli Pehlivanli

What's going on?

Data out on Tuesday suggested that the eurozone hit the ground running in 2023, with business activity growing unexpectedly this month.

What does this mean?

It’s January: the weather’s cold and the days are short, so you might expect us all to be united in our misery. But in Europe there’s a little holdout of optimism among purchasing managers, who responded to this month’s business activity surveys with unseasonably chipper answers. That stands to reason, too: an especially mild winter and badly needed government handouts helped to ease the region’s energy fears. Plus, companies’ confidence is swelling thanks to freshly freed-up supply chains and the fact that China’s re-opening is probably poised to jump-start demand. That could be why January’s purchasing managers’ index – which measures activity across manufacturing and service sectors – showed growth for the first time since June last year.

Why should I care?

For markets: Fickle forecasters.
Economists are changing their tune about the eurozone: after months of doom-and-gloom warnings, they’ve come to the conclusion that the region might actually dodge a recession and clock up a small but mighty 0.1% growth this year. That’ll please the European Central Bank: after all, the data suggests that the economy’s strong enough to bear a few more rounds of inflation-busting rate hikes. Markets are already pricing that in too, betting on a pair of 0.5 percentage-point bumps over next two months.

Zooming out: British bruising.
Europe’s relatively breezy optimism is in stark contrast to its British neighbors, where data out on Tuesday showed that output’s fallen at the fastest rate since the pandemic first struck. That’s hitting the UK where it hurts, with the services sector – a key driver of the UK economy – dropping off the sharpest cliff. No surprise, then, that economists think the UK’s already slipped into a recession, one that could last most of 2023 according to a survey by Bloomberg.

Originally posted as part of the Finimize daily email.

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