Financial and Monetary Systems

US economy holding up while China's economic malaise deepens, and other economy stories to read this week

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US shoppers in shopping mall.

A buoyant labour market is supporting consumer spending in the US. Image: REUTERS/Rachel Wisniewski

Gabi Thesing
Senior Writer, Forum Agenda
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  • This weekly round-up brings you the latest stories from the world of economics and finance.
  • Top economy stories: US economy maintains resilience in Q2, China's economic malaise deepens; Central bank leaders reaffirm policy tightening bias.

1. US economy maintains resilience in Q2

The US economy grew more than previously estimated in the first quarter and more recent indicators show that the economic resilience is holding up. This is raising expectations the Federal Reserve will resume hiking interest rates.

Gross domestic product in the first three months of the year rose 2.0% from the same period last year, the Commerce Department said on 29 June in its third estimate of first-quarter GDP.

The upward revision from the 1.3% estimate reported in May reflects upgrades to consumer spending and exports in the world's largest economy. Economists polled by Reuters had expected that first-quarter GDP growth would be raised slightly to a 1.4% pace.

A breakdown of contributors to US GDP.
The US economy grew more than initially reported in the first quarter. Image: Reuters/Refinitiv Datastream/David Culp

The latest reading presents a milder-than-expected slowdown from the 2.6% fourth-quarter growth and economic resilience appears to have been maintained.

New joblessness benefit claims fell last week by the most in 20 months while other reports this month showed better-than-expected employment growth in May, retail sales gains and a surge in housing starts.

Persistent labour market strength continues to bolster economic growth as it boosts wages. At the same time, this will continue to fuel inflation, most likely prompting the Fed to raise rates again in July.

According to Scott Hoyt, a senior economist at Moody's Analytics in West Chester, Pennsylvania: "While the economy will struggle in response to the Fed's actions ... slow growth will bring down inflation without precipitating a recession," Reuters reports.

2. China's economic malaise deepens

China's economy continues to face problems as factory activity contracted for a third straight month in June, following on from other lacklustre surveys this week.

This is increasing the pressure on policymakers to shore up growth in the world's second-largest economy, which is flatlining after an initially strong post-COVID rebound in the first quarter.

"The June PMI reflects a number of imbalances and weaknesses, such as: the continuous contraction of internal and external demand, an accelerated slowdown in the operations of small enterprises, and continuing increasing pressure on the private economy," said Bruce Pang, chief economist and head of research for Greater China at Jones Lang LaSalle, according to Reuters.

"This indicates the urgent need for a more powerful package of policy measures ... to ensure the annual growth targets," he added.

The government has set a GDP growth target of about 5% for this year after missing its 2022 goal.

China's factory activity extends declines.
China's factory orders contract for third straight month. Image: Refinitiv Datastream, Reuters/Pasit Kongkunakornkul

3. News in brief: Stories on the economy from around the world

The leaders of the top central banks – the US Federal Reserve, the European Central Bank (ECB) and the Bank of England – reaffirmed on 28 June that further policy tightening will be needed to tame stubbornly high inflation. But they believe this can be achieved without triggering outright recessions.

The eurozone inflation rate continued to fall in June as the cost of fuel dropped. Prices in the 20 countries that share the euro rose 5.5% this month from 6.1% in May, which is the seventh decline in the last eight months. Still, it's almost three times the ECB's 2% price stability target.

The International Monetary Fund's second in command, Gita Gopinath warned that the financial community may be too optimistic about the cost and difficulty of taming inflation, which raises the risk of economic instability.

Unemployment in Germany, Europe's largest economy, rose more than expected in June. Federal Labour Office data shows the number of people out of work increased by 28,000 in seasonally adjusted terms to 2.61 million. Analysts had expected the figure to rise by 13,000, according to a Reuters poll.

Britain's economy barely grew in the first quarter of this year expanding by just 0.1%, according to the Office for National Statistics. This figure remains unchanged from the initial estimate and leaves the country's output 0.5% lower than the final quarter of 2019 before the COVID-19 pandemic.

Mexico's financial system stability committee said the country's economic outlook is uncertain on Thursday, given the persistent risks to economic activity stemming from a complex external environment.It noted that domestic demand should nonetheless continue to support domestic economic activity.

Unemployment among Saudi citizens increased to 8.5% in the first quarter of 2023, compared to 8% in the fourth quarter of 2022, the Saudi general authority for Statistics said on Thursday.

Vietnam's economic growth accelerated in the second quarter, driven by the services sector. According to the General Statistics Office, gross domestic product grew 4.14% from a year earlier, faster than the 3.28% expansion in the first quarter.

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Financial and Monetary SystemsEconomic Growth
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Contents
1. US economy maintains resilience in Q2 2. China's economic malaise deepens3. News in brief: Stories on the economy from around the world4. More on finance and the economy on Agenda

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