Monthly Economic Outlook – April 2023

[00:00:00] Speaker 1: welcome and thank you for joining the wells fargo april economic outlook video in this video we're going to discuss economic developments in the united states and then also the outlook for federal reserve monetary policy and then we'll also touch on developments in internationally and then also the outlook for international monetary policy in the g10 and then also the emerging markets so nick i want to start with you obviously we just published our u.s economic outlook for april can you talk a little bit about some of the details and what we expect out of the u.s economy going forward and then also maybe the outlook for federal reserve monetary policy as well [00:00:42] Nick: sure thank you brendan so in terms of the outlook for the u.s economy there haven't been major changes over the last month in terms of our overall outlook what we're seeing in the early part of 2023 is the economy still has reasonable momentum we're adding 200 to 300 000 jobs per month and there's still some decent momentum in consumer spending but as we go through the year certainly i think the outlook is going to dim a little bit we've had all these interest rate increases over the past up to sort of five to five and a quarter percent and more recently we've had these banking sector strains so especially these interest rate increases we think are going to weigh on the consumer spending and also the housing market as well so although we've started the year up pretty well here in the united states by the time we get to the second half of the year and all these policy moves catch up with us we do believe there's still going to be a mild recession starting in the second half of the year maybe going through until early 2024 not a large recession with sort of talking peak to trough around about uh only 1.2 percent and actually because of that when you look at the year as a whole um we're still looking at overall gdp growth for this year of one percent and next year you know close to zero so a short-lived mild recession um which you know shouldn't be uh uh lead to you know a severe downturn that we would see here in the united states you mentioned brendan about you know monetary policy uh we are we do think we're close to the peak in monetary policy interest rates if the recession does turn uh if the economy does turn down along the lines that we expect and especially if inflation starts to improve you know eventually we do think things will turn around and we'll start to see uh interest rate cuts maybe by late 2023 but more particularly we would expect the federal reserve to lower interest rates fairly aggressively in 2024 as that inflation picture continues to improve thanks nick so i think [00:02:33] Speaker 1: the base case scenario sounds like a mild u.s recession but overall i think generally the theme there is resilience in the u.s economy um is that same resilience being tested or um or being shown in the international markets and if so what's the outlook for g10 monetary policy for the rest of this year [00:02:51] Nick: and maybe going into 2024 as well sure so a couple of things there brandon or two parts to that question let me take the first part about the resilience of the global economy first and i think it's fair to say that some of the resilience that we're seeing here in the united states we are seeing elsewhere in other parts of the world especially in europe where we've seen a sort of a fairly dramatic fall in these energy prices both oil and natural gas the outlook is improving now we're not talking about strong growth in the eurozone or in the united kingdom uh but we are you know shading our forecasts in a higher direction so looking at the eurozone for this for example for 2023 we're forecasting positive growth of 0.3 percent and i think in the case of the united kingdom we still have a very small negative growth in 2023 probably in the region of minus 0.2 or minus 0.3 percent so in both of these countries we are expecting just a quarter or two of a slight negative economic growth but that uh uh decline in energy prices that i talked about has been pretty important in terms of help helping the consumer helping the ability of consumers to spend and so much like the united states we do think these downturns are going to be very short-lived and actually by the end of this year we actually hope that these countries and economies will be returning to a positive growth path canada is another country which has displayed a surprising and pleasing strength at the start of 2023 and so with all of that we maintain an improving global growth outlook for this year we see global gdp at 2.2 percent and for next year we see global gdp growth in 2024 at 2.6 percent definitely heading in the right direction how does this play out then in terms of monetary policy which was one of your questions there brendan i think what we're seeing is that for some countries with the resilience that we're seeing in growth and of course inflation it's improving but it's still an issue in some countries we do think that there are a few central banks out there that could be raising interest rates further either matching the moves that we're going to see from the federal reserve or maybe even outpacing what we're going to see from the federal reserve so in terms of the european central bank we still expect another 50 basis points of rate increases similar from norway the norwegian central bank another 50 basis points and even in new zealand and they surprised recently with a large interest rate increase we're expecting another 25 basis points so that'll that'll match what we see from the fed going from here and so with that resilience a little bit of inflation a little bit more interest rate increases internationally we certainly see that happening and because you know maybe some of these central banks have caught up and in some cases overtaken the federal reserve in terms of just how quickly they're moving on those interest rates when we think about currency trends uh we we actually think that uh you know that's going to help some of these foreign currencies and the dollar could depreciate uh over the next several months and indeed quarters as we sort of look at the outlook so i think uh brendan you mentioned you know for example thinking about the global economy and the resilience that we're seeing in the economy uh in some of the major economies uh there has been some encouraging news that we've heard from china recently for example what are the latest developments there in china and uh what is the outlook there obviously china is an extremely important uh economy as far [00:06:15] Speaker 1: as a global economic prospects are concerned you're absolutely right nick it does look like uh developments in china are still relatively positive and again this is coming off of a couple of years of covet interrupted um economic activity and economic growth but the signals that we're getting over the last couple of months and some of the forward-looking signals that we're getting is that this economic uh rebound in china is still intact and still underway the pmi indices that we've gotten over the last couple of months are still relatively encouraging they're still within expansionary territory and then some of the alternative indicators of economic activity like mobility electricity usage metro subway passenger volumes all of these things at least suggest to us that again the economic rebound in china is still underway so right now we're forecasting china's economy to grow five and a half percent this year and then for next year in 2024 for that economic gdp number to be over five percent as well so it's still a relatively robust economic outlook for china and then just again to your point nick china's influence and importance within the global economy a improving economic outlook for china supports overall global economic prospects as well and as we've revised our china outlook upwards over the last couple of months in turn to your point earlier we've also revised our global economic outlook higher as well okay well [00:07:40] Nick: that is definitely good news just in terms of that global growth prospects that we talked about earlier brendan uh i think one other thing i i wanted to sort of uh ask you about as far as the emerging markets were concerned so we talked about some of these uh central banks the major central banks a little bit of uh economic resilience some inflation that some of these central banks are likely to raise rates a little bit further from where we are here uh i'm interested to know in terms of some of these emerging markets uh are we seeing like a similar trend as far as like interest rate moves um in some of these uh emerging markets or is there like a little bit of a difference in terms of the outlook for monetary policy across the emerging market [00:08:20] Speaker 1: space yeah thanks nick that's a great question and i think the outlook for the emerging market central banks is a little divergent from what we're seeing in the federal reserve and then also some of the g10 central banks that that you mentioned earlier at least in the emerging markets it does look like the tightening cycles are at least on pause for the time being and unless we get a renewed inflationary shock or some other type of development that leads to tighter monetary policy it would at least seem that many of the major emerging market central banks are through raising interest rates for the time being now in that sense we do have an outlook that some of the major emerging market central banks will begin easing cycles earlier than the fed and in some cases more aggressively than the fed and i think that's true in brazil where we have the brazilian central bank lowering interest rates in q3 and then we also have mexico central bank easing policy in q4 the one thing i would say though nick is that the way financial markets are priced right now they're priced for relatively aggressive easing cycles from many of these emerging markets central banks in our view we think it's unlikely that these central banks deliver on the amount of easing that's priced into markets and to your point earlier nick about the u.s dollar depreciation that's something that we think can broadly support emerging market currencies but also some of these em central banks keep policy rates higher for longer that's something that can act as a tailwind to the overall trend of emerging market currency strength that we forecast for this year and then [00:09:46] Nick: also leading into 2024. well thank you brendan thank you very much so at this point i'd just like to thank all of you out there for joining us today we hope that you found today's discussion interesting and insightful and the other thing is i'd like to thank you all for your continued readership and support of our efforts on the economic front so after that i just would like to wish you a pleasant day and we'll look forward to speaking to you again next month thank you and bye for now