Manufacturing Weekly Economic Highlights | 23 October 2023
Welcome to our weekly manufacturing and economic newsletter, providing key insights and analysis on the latest developments in the global market. Stay updated and make informed decisions!
In this edition, we focus on the economic conditions in America, Europe, China, Thailand, as well as updates on the energy and logistics markets.
Americas
“USD closed moderately lower this week”
“US deficit rises from 5.3% of GDP in 2022 to 6.3% in 2023”
“Eurozone deficits to fall from 3.6% of GDP in 2022 to 3.4% in 2023 and 2.7% in 2024”
“US Fed likely to hold rates on 1 November, but more than 50% likely to raise rates by January”
“UAW strike continues despite some progress”
The USD Index (DXY) ended moderately lower this past week, from 106.67 on 13 October 2023 to close at 106.16 on 20 October 2023.
The US deficit rose to $1.78 trillion USD, 6.3% of GDP for the year ending on 30 September, compared with $1.4 trillion at 5.3% of GDP in 2022, as reported on 22 October in The Wall Street Journal. The International Monetary Fund (IMF) predicts the US deficits will reach 7.4% of GDP in 2024 and 2025.
This compares with the Eurozone deficits which are projected to fall from 3.6% of GDP in 2022 to 3.4% in 2023 and 2.7% in 2024. The IMF further projects that total global government debt will increase by 1% over total global economic output in the coming years, with almost all of the increase attributed to the US and China.
By 2028, the US debt is forecast to increase to 138% of GDP, whereas the Eurozone is projected to fall to around 84% of GDP.
US Fed Chair Powell signaled on 19 October that the Fed will hold rates steady at their next meeting on 1 November, in part because long-term rates have surged over the past month with the yields on the 10-year treasury nearing 5%, effectively substituting for another Fed hike, as reported on 19 October by the Wall Street Journal. However, a separate article in the 18 October Wall Street Journal indicated that FedWatch futures are pricing a more than 50% likelihood of a Fed rate increase by January 2024. As reported by Reuters on 18 October, the Atlanta Fed is forecasting 3Q24 US GDP up 5.4%.
The UAW strike against the big three US automakers continued this week, with Ford Motor Chair Bill Ford calling on 16 October for an end to the strike. More than 33,000 of the combined three company’s 146,000 workers are on strike across six factories and dozens of parts distribution centers. As reported by Bloomberg on 20 October, the UAW President said they are close to a deal with all three automakers and has not sought to strike at any additional plants. The union has 23% raises on the table from all three companies, but is reportedly seeking 25%, in addition to better retirement benefits, job security, and inclusion of future battery plant workers in the union contract.
Europe
“EUR ended moderately higher against the USD”
“German PPI down 14.7% YoY mostly on base effects”
“Israel conflict could have stagflationary impact on Eurozone”
The EUR finished moderately higher this week, from $1.051 USD per EUR on 13 October 2023 to end at $1.060 on 20 October 2023.
German producer prices fell 14.7% YoY in September, the biggest fall since data collection began in 1949, as reported on 20 October by Reuters. Analysts were anticipating a 14.2% decline. However, base effects factored significantly into the fall, as September 2022 producer prices increased 45.8% YoY due primarily to the Ukraine war. The German PPI, which has been falling steadily since September 2022, is increasing analyst hopes that Eurozone inflation could be cooling.
European Central Bank policymaker Stournaras indicated that the Israel conflict is “likely to have a stagflationary impact if it becomes a problem” due to energy market disruption and an influx of refugees, as reported on 18 October by Reuters.
Reuters reported on 20 October that none of the 85 economists they polled predicted any increase in ECB rates, with the majority forecasting no rate reduction until at least July 2024. Eurozone inflation is on a downward trajectory at 4.3% in September but is still more than double the 2.0% ECB target. The poll also predicted that German GDP, which shrank in 2Q23, will shrink again in 3Q23 and probably again in 4Q23.
China
“The CNY trend this week broke through the psychological 7.3 barrier”
“Chinese 3Q23 GDP up 4.9% YoY”
“China’s 2024 GDP forecast falls to 4.2%”
“China 2030 GDP could fall to 3.0%”
The CNY ended moderately weaker this week, from 7.305 per USD on 13 October 2023 to end at 7.316 per USD on 20 October.
The Wall Street Journal reported on 18 October that China’s economy grew at 4.9% YoY in 3Q23, which was higher than expected attributed primarily to rising retail sales. However, the IMF lowered its China 2024 GDP forecast to 4.2%, down from 4.5%. The IMF also reduced its China 2027 GDP forecast to 3.7%, down from 4.6%. Oxford Economics revised its 5-year average Chinese GDP forecast to 4% per year, down from 4.5%. Morgan Stanley has predicted that China’s 2030 GDP will fall to 3.0%.
Recommended by LinkedIn
One of the biggest factors in the forecast fall in Chinese GDP is the ongoing property sector crisis, which was previously estimated to account for 25% of Chinese GDP. Chinese local governments may be forced to slow their infrastructure investments and industrial subsidies due to rapidly declining financial resources, which rely heavily on home sales.
The article also noted that Chinese economic activity indicators, including investment and industrial output, have stabilized at around 5% below pre-pandemic levels. “This all suggests a bigger-than-expected permanent output loss to the economy, likely due to a structural shift in spending and investment patterns,” per Lead Economist at Oxford Economics Louise Loo.
The government of Xi Jinping has strongly signaled its focus on protecting national security and preparing for greater conflict, rather than seeking economic growth. Morgan Stanley Chief China Economist Xing said that policy makers need to pursue measures to reflate the economy or risk falling into a debt – deflation loop.“ The private sector is still suffering from a confidence deficit.”
Thailand
“THB ended modestly weaker this week”
“Chinese investment applications and FDI surge”
The THB finished modestly weaker this week, from 36.33 per USD on 13 October 2023 to end at 36.47 per USD on 20 October 2023.
Reuters reported on 17 October that Chinese investment applications in Thailand increased nearly 300% YoY during January through August 2023, with total investment applications up 73% YoY in the same period. China was the leading source of investment applications, followed by Singapore which was also primarily from Chinese companies. Most of the 228 Chinese investment applications were in the electronics sector.
Net FDI from China increased 56% YoY in 1H23 per Bank of Thailand statistics. Leading Thai industrial estate developer WHA Group foresees continued strong Chinese FDI, which has led WHA to achieve two consecutive years of record land sales. WHA expects continued strong Chinese FDI for at least the next two years.
Energy
“Crude closed significantly higher this week”
“US Natural Gas closed moderately lower”
“EU Natural Gas finished moderately lower, but remains up 30% since Israeli conflict”
“Qatar replacing Russia as natural gas supplier to Europe”
Brent Crude finished moderately higher again this week, from $90.80 USD on 13 October 2023 to close at $92.51 USD on 20 October.
Henry Hub finished moderately lower again this week, from $3.21 USD per MMBTU on 13 October 2023 to close at $2.92 USD on 20 October.
EU Natural Gas finished moderately lower again this week, from €53.98 EUR per MWH on 13 October 2023 to close at €51.11 EUR on 20 October (equivalent to $14.14 USD per MMBTU).
Crude prices are rising on fears that Iran could enter the conflict, opening it to sanctions that could restrict its oil exports of 2 million barrels per day. Also supporting crude prices was the fall in US crude inventories by 4.5 million barrels for the week ending 13 October, per MarketWatch on 18 October.
Reuters reported on 16 October that the US and Venezuela are close to a deal to ease sanctions on Venezuelan crude exports in return for a pledge of competitive, monitored presidential elections in 2024. However, the Venezuelan oil industry infrastructure has fallen into a decrepit state following 10 years of sanctions and would require massive investment just to restore output to pre-sanction levels. Meanwhile, last week the US imposed sanctions on the owners of tankers transporting Russian oil exceeding the $60 USD price cap.
Qatar agreed supply Shell Netherlands with natural gas for 27 years, as reported by Reuters on 18 October. This followed a nearly identical agreement last week between Qatar and TotalEnergies for natural gas supply to France. Qatar is the world’s top exporter of LNG and is competing against the USA to replace Russian gas supply to Europe. Last year ConocoPhillips Germany signed a 15-year deal with Qatar for LNG supply. Previously, Qatar focused primarily on long-term supplies of LNG to the Asian market. Eurozone gas prices fell this week, but the market remains tight and subject to future price increases on supply disruptions or harsh winter weather.
Logistics
“BDI closed modestly higher again this week”
“US trucking industry struggle with overcapacity to persist through 2024”
Baltic Dry Index ended modestly higher again this week, from 1,945 on 13 October 2023 to close at 2,046 on 20 October. Trading Economics has again significantly raised its BDI forecast this week to 2,046 by the end of 4Q23, and 2,380 in 12 months. The BDI has been climbing steadily since 5 September when it stood at 1,063.
The US truckload freight market has been suffering from significant overcapacity, as reported on 21 October by FreightWaves. Monthly truckload volumes for September 2023 were up 16% over September 2018. However, the number of carrier operating authorities is up 49% over the same period. The industry has been struggling with overcapacity since early 2022 when the expiration of COVID stimulus eroded consumer demand. The US carrier supply demand balance now appears to be tightening, with demand increasing and carrier capacity projected to fall particularly this winter following the seasonal peak. The author suggests that the market excess supply may persist through 2024.
FreightWaves reported on 19 October that Deloitte Consulting and Nexxiot have launched a new service called KYX, which is based off Deloitte’s Know Your Client (KYC) and Know Your Cargo services. The new service seeks to increase the data visibility of containers by tracking the physical location and status of containers alongside the financial aspects related to each container, such as insurance on the container’s goods. One of the goals is to help ports prevent illicit trade associated with container shipments. The new program will be rolled out to large multinational corporations moving goods globally. The system will later be expanded to allow medium and smaller players to join. One benefit of the system will be to ensure goods are not held up by port authorities, so they arrive on time.