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In our Market Insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.
US economic output hits highest level since April 2022
The US economy is showing strong growth as businesses brace for lower interest rates and the incoming Trump administration in Washington.
S&P Global's flash US composite PMI, which tracks both services and manufacturing sectors, rose to 55.3 in November, up from 54.1 in October. Economists had anticipated a slight increase to 54.3. November’s PMI indicates the fastest pace of business expansion since April 2022.
This growth was mainly driven by the services sector, which saw the index climb to 57, the highest level in 32 months, up from 55 in October. In contrast, the manufacturing sector remains in contraction, though it showed a slight improvement to 48.8 from 48.5, marking the highest level in four months. A reading above 50 indicates sector expansion, while below 50 signals contraction.
This positive outlook for the US economy aligns with projections for a strong fourth-quarter GDP. The Atlanta Fed's GDPNow Tool estimates the economy will grow at an annualised rate of 2.6% in the fourth quarter.
In a recent economic outlook, Deutsche Bank’s chief US economist, Matthew Luzzetti, raised his GDP growth projections for 2025, partly due to the incoming Trump administration.
He expects stronger momentum going into 2025, supported by modest tax cuts, deregulation, and more favourable financial conditions, raising the growth forecast for 2025 to 2.5% from the previous 2.2%.
German economy avoids summer recession, but a winter recession looms
The German economy grew by a meagre 0.1% quarter-on-quarter in the third quarter, just avoiding an official technical recession. However, the latest developments suggest that a winter recession is still looming
The initial optimism surrounding Germany's third-quarter GDP growth has dimmed. The second estimate reveals the economy narrowly escaped a summer recession, with growth revised down to just 0.1% quarter-on-quarter (QoQ) from the earlier estimate of 0.2% QoQ.
This follows a contraction of 0.3% QoQ in the second quarter. Rather than signalling a recovery, this result underscores the German economy's stagnation, with output barely above pre-pandemic levels of more than four years ago.
New details from the GDP breakdown show that private consumption and inventory accumulation were the primary contributors to growth in Q3, while net exports and investments acted as drags. The heavy reliance on inventory buildup over the past two quarters raises concerns about future quarters, as a shift to inventory reduction could hinder growth.
Germany’s economic struggles stem from both cyclical pressures and deep-rooted structural issues. While the pandemic and the war in Ukraine have exacerbated these challenges, they are not the core causes of the stagnation.
Looking ahead, there is little reason to expect a swift turnaround. The anticipated policies of the incoming US administration, coupled with ongoing political uncertainty following the collapse of the German government, are likely to dampen sentiment further. Potential US tariffs, tax cuts, and deregulation could indirectly harm German competitiveness, adding to the country’s challenges.
On a more optimistic note, a new German government—if it can overcome policy paralysis—might finally deliver the decisive economic direction needed to restore growth and competitiveness. However, this remains uncertain.
While a summer recession was avoided, a winter recession appears increasingly likely. Beyond winter, Germany's growth prospects will hinge on the new government’s ability to bolster the domestic economy, navigate potential trade conflicts, and respond to intensifying industrial policies from the US.
Surprise fall in retail sales displays signs that UK economic growth is slowing
Official data shows that last month, consumers spent significantly less than anticipated due to concerns over budget constraints and unusually warm weather.
In a sign of an economic slowdown, retail sales dropped by a notable 0.7%, as reported by the Office for National Statistics (ONS). This decline exceeded expectations, with economists surveyed by Reuters initially forecasting a smaller decrease of 0.3%.
The warm October weather hit clothing stores especially hard, with sales in this sector falling by 3.1% as shoppers delayed winter purchases. Retailers across various sectors also observed a cautious approach from consumers, who seemed to hold back on spending ahead of the budget announcement, according to the ONS.
Just the previous month, in September, retail spending had risen by a modest 0.1%. Despite October’s decline, the ONS noted a general upward trend in sales over the past year and across the last three months, although figures remain lower than pre-COVID-19 levels.
Retail sales figures are crucial, as they capture household consumption—the largest component of the UK economy’s expenditure. These numbers also provide insight into consumer sentiment regarding their financial outlook and the broader economy.
Another indicator of the economy’s deceleration was the recent GDP report, which showed growth below expectations. Meanwhile, there were positive signs of rising consumer confidence in the weeks following both the UK budget announcement and the U.S. election.
The ONS also highlighted that inflation remains a challenge, with households still facing high living costs. It emphasised that the new UK government will need time to fulfil its promise of bringing about meaningful change.
