Euro zone back on track for growth – US loses top credit rating

The euro area economy grew again in the second quarter and increased by a significant 0.3% compared to the previous quarter. At the same time inflation has come down. It also confirmed that monetary union avoids a recession, with GDP stagnating in the first quarter of 2023. However, interest rates, meanwhile, have risen to a 23-year high, slowing the economy. The European Central Bank (ECB) wants to use them to reduce inflationary pressure. Although annual inflation in the euro area eased to 5.3% in July (from 5.5% in June), it is still above the ECB’s target of 2%. Core inflation excluding energy, food, alcohol and tobacco was unchanged at 5.5%.

News from around the world

International ratings agency Fitch downgraded its long-term US bond rating from AAA to AA+, citing a “steady decline” in governance over the past 20 years. The downgrade reflects “an expected deterioration of the fiscal situation over the next three years,” as well as rising public debt. Persistent political deadlocks over the debt ceiling have “undermined confidence in budget management,” Fitch noted. US Treasury Secretary Janet Yellen called the decision “arbitrary”. Additionally, it is based on “outdated” data. Markets reacted to the news with a rise in US bond yields and the US Treasury announced an increase in issuance. Meanwhile, stock prices fell for the week.¹

Focus Number: 14

The Bank of England (BoE) raised interest rates for the 14th consecutive time from 5.0% to 5.25% in an attempt to ease inflationary pressures. Two members of the nine-member monetary policy committee called for a 50 basis point hike and another for sticking with the previous rate. Recalling that inflation hits the poorest hardest, BoE Governor Andrew Bailey added: “We must ensure that inflation reaches the 2% target at any cost.” The central bank amended it. The inflation outlook is expected to be 4.9% by the end of 2023, while a return to the inflation target in the second quarter of 2025 and no end of 2024.

Worth knowing

Germanium and Gallium: Two indispensable raw materials for making semiconductors. China, the world’s largest producer of gallium and germanium, has imposed new export restrictions on the two commodities, which took effect last week. National security concerns have been cited as the reason for this, as these metals can be used not only commercially, but also for military purposes, for example solar panels. However, the decision was seen as retaliation for recent export restrictions on technology exports to China by the US, Japan and the Netherlands.

That brings the week

China released data on its imports and exports on Tuesday and will release updated inflation data today. On Thursday, India’s central bank will announce its latest interest rate decision, while the US will announce its July inflation data – June inflation at 3%, the lowest since March 2021. A flash estimate of UK GDP growth in Q2 will be published. Expected on Friday. The consensus forecast was for a 0.1% increase, which was already ahead of 0.1% qoq growth in the first quarter.

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