Markets overview: Economic growth is supported by consumption
Global economic growth remains weak, and Q1 data should show the lowest point of economic growth. Consumption remains the main driver of growth, with savings and low unemployment supporting consumption in the US and Eurozone.
Ilkka Saksa, Senior Strategist at our bank, observed while reviewing market forecasts that savings accumulated during the pandemic are melting at a rapid pace in the US, while they remain stable in the Eurozone.
Main market trends:
- The Eurozone economy has withstood the initial effects of the war in Ukraine better than expected.
- Inflation rates are decreasing due to the component of energy resources, yet other inflation components, especially service inflation, remain at a high level. For this reason, central banks will continue to raise interest rates for at least the next few months.
- The collapse of several US banks briefly lowered interest rate expectations in the markets. However, according to our bank's analysts, they will soon return to their previous levels, affecting interbank rates accordingly, so EURIBOR is likely to approach 4% again.
- Markets expect that the base interest rates of the US Federal Reserve Bank will reach their highest level in June this year, and in the Eurozone - in September. Expectations prevail that even after the end of the monetary policy tightening cycle, the base interest rates will remain at a relatively high level in the medium term - they will reach around 3% in the US and slightly below 3% in the Eurozone.
- With the reduction of the risks posed by the prices of energy resources, the EUR/USD exchange rate should be characterized by less movement. Our bank's market experts expect a slight strengthening of the euro in the short term to 1.14 EUR/USD.
China's economic recovery from COVID-19 restrictions contributes positively to global economic growth, while declining consumer purchasing power, which negatively affects the industrial sector, becomes a negative factor.
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