The eurozone economic confidence index weakened to a 15-month low in June, the lowest since March 2021, showing falling morale among construction managers, consumers and retailers.
The index decreased from 105 in May to 104.0 in June but exceeded forecasts of 103. Increases in industrial and services confidence offset the above. The industrial sentiment index improved to 7.4 from 6.5, with the services confidence index also improving to 14.8 from 14.1 the previous month.
Simultaneously, the consumer confidence index dropped more than expected from -21.2 in May to -23.6 in June. Construction confidence fell, plunging to 3.7 from 6.3 due to a decline in the level of order books and a sharp decrease in employment expectations, also indicating that inflationary pressures are persisting, and likely to weigh on demand and sentiment further ahead.
In the meantime, the EU27 economic confidence index decreased by 1.7 points to 102.5.
On the other side of the Atlantic, the US Commerce Department revised marginally downwards the first quarter 2022 real GDP adjusted to inflation to a 1.6 per cent contraction from the previously reported 1.5 per cent. GDP fell slightly by more than was estimated, as the increase in consumer spending during Q1 was revised downwards to 1.8 per cent from 3.1 per cent.
The slightly higher than estimated decline in GDP in Q1 followed a 6.9 per cent spike in GDP in Q4, 2021. This indicates a slowing US economic momentum.
It was also reported that the notable negative revision to consumer spending growth was partly offset by an upward revision to private inventory investment. The decline in GDP in Q1 showed decreases in exports, private inventory investment and government spending, while showing an increase in imports.
Simultaneously, the fall was mitigated following increases in non-residential fixed investment, consumer spending and residential fixed investment. Front-loaded rate hikes by the Fed have increased the possibility of a decline in economic growth, which could lead to a recession.
In May, Japan’s industrial production fell heavily by -7.2 per cent, notably worse than the expected -0.3 per cent, the sharpest fall in the last two years. Weakness in vehicle production contributed mostly with a -9.0 per cent drop, the third consecutive month of decline, with general production remaining fragile.
Japanese carmakers’ supplies where highly disrupted by China’s lockdowns. Tech products output also contracted substantially, while electrical machinery, which include batteries for e-vehicles and home appliances, tumbling by -6.7 per cent . Electronic equipment also fell by -11.4 per cent.
Simultaneously, petroleum and chemical products rose by 7.6 per cent in May following a 1.7 per cent gain in April, supported by demand. The sharp decline in industrial production indicates that Japan’s Q2 GDP
rebound should be limited, from the forecasted 0.3 per cent growth, and the forecasted 2022 annual GDP estimated at 0.8 per cent. This should indicate that the Bank of Japan should not make any changes to the accommodative monetary policy anytime soon considering the weak economic environment.
This report was compiled by Bank of Valletta for general information purposes only.