Macroscope | US, Germany data suggests world economy is not doomed to recession in 2023

It might be hard to swallow considering the wall of negative views from pundits, but good news in the US labour market and an uptick in German manufacturing are adding to signs of recovery

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German Chancellor Olaf Scholz (second left) meets employees during a factory tour at the Thyssenkrupp Marine Systems shipyard in Kiel, Germany, on December 13, 2022. Photo: EPA-EFE

Published: 5:45am, 10 Jan 2023

Could we be heading into a sweet spot of stronger recovery, better job creation and lower inflation in the next year? It might be hard to swallow considering the wall of negative views coming from economy watchers, but in the United States at least there are some clues to better times ahead.

Last week’s US employment data for December showed improving labour market conditions with positive hints that wage inflation might be on its way down. This comes against a backdrop of the US economy expanding at 3.2 per cent in the third quarter of 2022.

Even money markets are starting to moderate their expectations for further US Federal Reserve interest rate tightening. It’s not quite a Goldilocks moment, but it’s better than the doom and gloom predictions which have gripped markets in recent months. Much depends on the outlook for global economic confidence and whether the world’s business community can stage a comeback after a tough 2022.

There were early indications of recovery in the latest raft of global manufacturing purchasing manager indices (PMI) issued last week. However, it will take more solid performance from the US, China and European economies before the markets are convinced about the case for sustainable global growth.

With so much recent bias about the risk of recession, the challenge will be spotting early shoots of recovery as they emerge.

One big surprise in last week’s data was the improvement in the outlook for German manufacturing. The manufacturing PMI, published by S&P Global, rose to 47.1 in December, from 46.2 in November, the best reading for three months. December’s number was still shy of the 50 threshold, marking the difference between growth and contraction, but it’s a sign that German industry could be turning a corner.