“German Economy…”

The German economy grew slightly in the first quarter from the previous one by an adjusted 0.2% quarter on quarter and 3.8% on the year, said the Federal Statistics Office on Wednesday. The reading shows that Germany navigated a recession, which is defined as two quarters in a row of quarter-on-quarter contraction, after gross domestic product (GDP) dropped by 0.3% at the end of 2021.  Investments grew while household and government spending remained mostly at the same level as in the previous quarter while exports were down at the beginning of the year. Construction investments were up by 4.6% from the previous quarter despite price increases whilst machinery and equipment investments climbed by 2.5%. 

German Business Morale

Business morale in Germany increased unexpectedly in May as the services sector improved helping to offset the impact of high inflation, supply chain problems and the war in Ukraine, showed a survey on Monday.  According to the Ifo Institute its business climax index climbed to 93 in May following a 91.9 reading in April.  In its statement, Ifo said that it saw, “no observable signs of a recession.”  Nonetheless, data which was released on Friday showed German producer prices saw their highest ever annual increase in April climbing by 33.5% on the year amid the increase in the cost of energy that impacted the German industry. 

Germany wants Russian oil embargo

Out of the 27 EU member states, Hungary has highly disapproved the planned embargo on Russian oil. According to German Economy Minister Robert Habeck, Germany is willing to do without Hungary’s participation to speed up the oil embargo targeting Russia.

Eurozone Business Growth

Eurozone Business Growth slowed this month however remained strong despite the higher cost of living that put pressure on consumer spending, while a shortage of raw materials held back expansion in manufacturing, a preliminary survey showed on Tuesday.  The S&P Global Flash Composite Purchasing Managers’ Index (PMI) which is a good metric for the overall economic health, dropped 54.9 in May from 55.8 in April.  Any reading above 50 indicates growth.  May’s services PMI dropped 56.3 from 57.7 as consumers were cautious amid price increases.

Federal Reserve Minutes

The Federal Reserve Policy meeting held on 3rd and 4th May backed an 0.5% increase in interest rates to combat inflation.  This increase of 50 basis points in the FED’s benchmark overnight interest rate was the first of its size in more than 20 years, and “most participants” judged that further interest rate hikes of that size would “likely be appropriate” at the FED’s policy meetings in June and July.  The minutes also revealed that “all participants concurred that the US Economy was very strong, the labour market was extremely tight, and inflation was very high,” with even further risks of higher inflation amid supply chain problems, the war in Ukraine and the coronavirus in China.  Furthermore, “many participants” judged that getting rate hikes in the books now “would leave the Committee well positioned later this year to assess the effects of policy firming.”  The minutes showed that the FED is struggling with how best to navigate the economy towards low inflation without causing a recession or move unemployment to higher levels.  Such a task was described as quite challenging considering the current environment.  The minutes also revealed that the economy remained strong, with households in good shape to the extent that FED officials opined it might be harder to ask them to halt their spending habits to reduce the pressure on prices. Furthermore, the minutes noted that supply constraints on businesses “were still significant” and hiring remained difficult, while the “ability of firms to meet demand continued to be limited”.    

US Weekly Jobless Claims

The number of Americans filing new claims for unemployment benefits dropped last week.  This is in line with a tight labour market amid strong demand for workers despite rising interest rates and tightening financial conditions.  Initial claims for state unemployment benefits dropped by 8,000 to a seasonally adjusted 210,000 for the week ended May 21, said the Labour Department on Thursday.  In a separate report on Thursday, the Commerce Department confirmed that the economy has contracted in the first quarter under the first quarter under the weight of a record trade deficit and a slightly slower pace of inventory accumulation in comparison to the fourth quarter. Gross domestic product dropped at a 1.5 annualised rate last quarter, said the government in its second GDP estimate.  This was revised down from the 1.4% decline reported in April.  The economy grew at a robust 6.9% in the fourth quarter.    

Interest rates according to Lagarde

ECB President Christine Lagarde said on Monday that the ECB is likely to lift its deposit rate out of negative territory by the end of September and could raise it further if it sees inflation stabilising at 2%.  On a blog post published on the ECB website, Lagarde said, “Based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter.”  Currently the ECB deposit rate is -0.5% which implies that banks are charging to park cash at the central bank.  The deposit rate has been below zero since 2014 as the central bank tried to combat extremely low inflation. However, prices have been rising in recent months amid increases in energy prices highlighted by Russia’s invasion of Ukraine.  In fact, headline inflation in the eurozone hit an all-time high of 7.4% in April.  Lagarde further added that “If the euro area economy were overheating as a result of a positive demand shock, it would make sense for policy rates to be raised sequentially above the neutral rate.” However, she cautioned that the pace and size of the rate increases could not be determined at the outset as the economy faced supply shocks from the lockdowns in China and the implications from the war in Ukraine.  She further added, that “this creates uncertainty about the speed with which the current price pressures will abate, about the evolution of excess capacity, and about the extent to which inflation expectations will continue to remain anchored at our target.” Concurrently, the euro rallied on Monday while a calmer mood on equity markets in European trading also pressured the dollar.

UK – Windfall tax on Energy producers’ profits

On Thursday, the UK has announced a 25% windfall tax on the profits of oil and gas producers in addition to a package of support to households that are struggling with increasing energy bills.  Boris Johnson’s government has previously resisted such taxes describing them as a deterrent to investment. Besides the levy charged on profits of oil and gas companies at a rate of 25%, finance minister Rishi Sunak said, “We’re also building in a new investment allowance that doubles the relief for the energy companies that invest their profits in the UK.”   

Gold prices

Gold prices climbed by more than 1% on Monday as the dollar dropped to its lowest in a month. Meanwhile, the concerns about growth in the economy kept the bullion’s safe-haven demand intact.  Spot gold climbed by 0.8% to $1,860.34 per ounce while US gold futures gained 1% to $1,860.  As investors kept the selling pressure, the dollar slumped by 1%.  A weaker dollar made gold cheaper for overseas buyers. Gold is considered as a hedge against inflation and a safe haven during uncertainty.  Gold is highly sensitive to US interest rates as the commodity pays no interest. Wednesday saw gold prices slipping amid a stronger dollar as investors awaited the minutes from the FED of the May policy meeting which were due later on in the day.  Spot gold dropped 0.6% to $1,855.03 per ounce while US gold futures dropped 0.6% to $1,853.40. 

Oil Prices

Oil prices gained on Monday in the wake of US fuel demand, tight supply and a slightly weaker US dollar supporting the market. Brent crude futures rose by 1% to $113.67 a barrel while US West Texas Intermediate crude futures climbed by 0.9% to $111.24 a barrel.  The US peak driving season traditionally starts on Memorial Day weekend and ends on Labour Day in September.  Oil prices steadied on Tuesday after volatile trading offset concerns about a possible recession and covid restrictions in China.  Prices turned negative after US Energy Secretary Jennifer Granholm said President Joe Biden had not ruled out using export restrictions to ease increasingly domestic fuel prices.  Brent crude rose 14 cents to settle at $113.56 a barrel while US West crude dropped to settle at $109.77 a barrel.  Wednesday saw old prices rising amid tight supplies and as US refiners drove processing activity to their highest level since the start of the pandemic.  Brent crude futures for July settled to $114.03 while the US West Texas Intermediate crude for July delivery traded at $110.33 a barrel. 

Malta:  Retail Price Index – April 2022

In April, the annual rate of inflation as measured by the RPI stood at 5.67%, higher from the 4.43% in March 22.  The largest upward impact on annual inflation was measured in the Food Index (1.98%).  The RPI measures monthly price changes in the cost of purchasing a representative basket of consumer goods and services and is closely linked to the COLA (Cost of Living Adjustment) increases and periodic rent payment adjustments.

Malta: Registered Unemployment for April 2022

A press release dated 25 May 2022 shows that according to data provided by Jobsplus in April, the number of persons registering for work stood at 963 decreasing by 1,285 in comparison to the same month of 2021. Registered unemployment levels declined across all age groups for both males and females.  The largest share of males and females on the unemployment register looked for occupations as clerical support workers with 21.9 per cent and 43.8 percent respectively. 

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