Investment Institute
Weekly Market Update

Take Two: G20 countries to calibrate pace of rate hikes; Japan GDP unexpectedly contracts

  • 21 November 2022 (5 min read)

What do you need to know?

Central banks in the world’s largest economies will “calibrate the pace” of monetary policy tightening, to avoid spillovers and currency volatility, leaders of the G20 agreed last week. The declaration from November’s summit of world leaders pledged that future interest rate hikes will be “data-dependent and clearly communicated” to help stabilise prices and safeguard the global economic recovery. Meanwhile, the International Monetary Fund indicated an even gloomier outlook than it forecast last month, citing various headwinds which continue to pressure global economic activity, including inflation, weak growth in China and the ongoing Ukraine crisis.

Around the world

Japan’s economy endured an unexpected contraction in the third quarter (Q3). GDP declined 1.2% annualised, below market expectations and a sharp drop from the revised 4.6% growth in Q2. The country’s first economic contraction in a year reflects a weak yen and rising import costs as well as a global economic slowdown. Similar pressures drove Japanese core annual inflation to 3.6% in October, from 3% the previous month, its highest since 1982. Meanwhile, separate data showed UK annual inflation reach a 41-year high in October – soaring to 11.1% from 10.1% in September – on the back of rising food, energy and fuel costs. Eurozone inflation was also revised down slightly to 10.6% from an initial estimate of 10.7%, though still a record high.

Figure in focus: Eight billion

Increased lifespans thanks to improved health and nutrition pushed the global population past eight billion last week. There has been a gradual slowing in the pace of population growth, the United Nations said, but it expects the world to reach nine billion people around 2037 and 10 billion around 2058. The report was released as the COP27 climate meeting in Egypt entered its second week, seeking to move past sticking points around financing to developing nations, how to structure the phasing out of fossil fuels and how to track progress toward countries’ climate goals.

Words of wisdom:

Fool in the shower: A metaphor for the way that central banks should approach economic stimulus, attributed to US economist Milton Friedman. According to the theory, stimulus should be slow, and policymakers should wait for the lagged impact of their actions to filter through to the economy, rather than continuing to act before the results are clear. Otherwise they may behave like the ‘fool in the shower’, who turns the temperature dial too much, swinging the temperature from too cold to far too hot.   

What’s coming up

Flash Purchasing Manager Indices (PMIs) dominate much of the week ahead, with numbers for the US, Eurozone and UK on Wednesday. The minutes of the latest Federal Open Market Committee policy meeting are also published on Wednesday. Japan’s Jibun Bank PMIs land on Thursday. A final estimate for Germany’s Q3 economic growth rate is reported on Friday.

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