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BOV Market Watch - Week ending 25th November 2022
25 Nov 2022

Rising interest rates and inflation to slow world growth next year - OECD. World economic growth is slowing due to high interest rates and punishing inflation effects, the Organization for Economic Cooperation and Development (OECD) said on Tuesday, calling for “essential” further monetary policy tightening and “more targeted” government support. Global GDP is forecast to grow by 3.1 percent this year, and by just 2.2 percent in 2023, according to the latest forecast by the 38-country intergovernmental organisation. “It is true we are not predicting a global recession,” OECD Secretary-General Mathias Cormann said at a news conference. “But this is a very, very challenging outlook, and I don’t think that anyone will take great comfort from the projection of 2.2 percent global growth.”

US Fed hints at slower pace of interest rates hikes. Minutes of the most recent monetary policy committee meeting of the Federal Reserve (Fed) published on Wednesday, show that officials should soon moderate the pace of interest rate increases, thus mitigating risks of overtightening. They indicated that they were inclined to shift the gear down to a 50 basis-point hike in December from the series of 0.75 basis-point hikes of the past three meetings. This reflected statements that many committee officials made in recent weeks. Since the Fed's last meeting on November 1-2, investors have increased their optimism that price pressures have started to subside, leading some analysts to believe that smaller interest rate hikes could be enough to continue curtailing inflation.

Eurozone private sector remains in contraction territory but inflation pressures fade. The eurozone composite Purchasing Managers’ Index, or PMI, came in at 47.8 in November, slightly better than in the October figure of 47.3, though nonetheless confirming that the currency bloc’s economy is still in contraction mode. The reading was expected to come in at 47.0. However, it remained below the 50.0 threshold that separates expansion from contraction for the fifth month in a row. The good news is that inflation pressures are fading as supply constraints ease along with the effects of a possible recession. The November PMI data also bring some tentative good news, Chris Williamson, chief business economist at S&P Global Market Intelligence, said. The economist pointed out that the overall rate of decline has eased compared to October thanks to some easing in supply constraints and the warm weather easing fears regarding energy shortages.

Australian private sector contracts for second straight month. Australia’s private sector activity contracted for the second consecutive month in November, according to initial PMI data. Australia’s PMI Manufacturing dropped to 51.5 in November from 52.7 in October, a 29-month low. In the meantime, the PMI Services dropped to 47.2 from 49.3, a 10-month low. The composite PMI dropped to 47.7 from 49.8, also a 10-month low. It looks as if the Australian economy is finally slowing in response to the Reserve Bank of Australia’s monetary tightening.  

New Zealand central bank delivers largest rate hike in its history. The Reserve Bank of New Zealand (RBNZ) on Wednesday increased its key interest rate by 0.75 percentage points to 4.25 percent. This was the largest increase in the Official Cash Rate (OCR) since it was introduced in 1999. Inflation, at 7.20 percent, is well above the central bank’s target range of one to three percent, which, along with a tight labour market, has prompted economists to predict a higher peak for the OCR, currently at 4.25 percent. “Inflation is no one’s friend,” Reserve Bank governor Adrian Orr said in a press conference after the announcement. “In order to rid the country of inflation, we need to reduce spending levels.”

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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).