Take Two: US agrees debt ceiling deal; Eurozone inflation eases more than expected
What do you need to know?
The US Congress agreed a deal to suspend the federal government’s borrowing limit through January 2025 and prevent a potential default on its $31.4trn debt. The bill was passed by the House of Representatives and then the Senate as the debt ceiling approached. Ratings agency Moody’s predicted the US would deliver GDP growth of about 1% for the next two years, but incorporating a mild recession during 2023 – reflecting the impacts of persistent inflation and global monetary tightening on economic growth. Meanwhile the Federal Reserve’s ‘Beige Book’ of anecdotal reports from around the US suggested that expectations for future growth had “deteriorated a little”.
Around the world
Eurozone annual inflation eased more than expected to 6.1% in May from 7.0% in April and against a consensus forecast of 6.3%. Core inflation was also lower than expected at 5.3% from 5.6% the month before. However, European Central Bank President Christine Lagarde indicated the bank will likely keep raising interest rates, with “no clear evidence” inflation had peaked and with still “ground to cover”. Elsewhere, China’s small factory activity showed an unexpected improvement, as the country continues to recover from COVID-19 restrictions. The Caixin manufacturing Purchasing Managers’ Index (PMI) rose to 50.9 in May from 49.5 in April – a reading above 50 indicates expansion – though the official government measure, covering broadly larger businesses and state-owned enterprises fell to 48.8 from 49.2.
Figure in focus: 440 gigawatts
Renewable capacity additions worldwide are expected to rise by a third this year, in the largest absolute increase ever, to over 440 gigawatts (GW), according to the International Energy Agency (IEA). This would bring total global renewable capacity to 4,500 GW by the end of 2024 – equivalent to the US and China’s combined power capacity. The IEA suggests this will largely reflect an expansion in solar photovoltaic and wind capacity, with China expected to account for over half of global capacity additions this year and next. It warned that the continued growth of this new global energy economy would require greater policy support and infrastructure investment.
Words of wisdom:
Moore’s Law: A 1965 projection made by US engineer Gordon Moore that the number of transistors in an integrated circuit would double about every two years over the decade that followed. Moore was a co-founder of semiconductor maker Intel and his observation – which implied ever smaller, faster and cheaper computing power – became part of technology industry planning. This may have helped make his prediction a self-fulfilling prophecy, to the extent that it became known as a ‘law’ which has largely held true until the present day. Recently, some industry observers have suggested Moore’s Law may be reaching an end based on the physical limits of production.
What’s coming up
Monday sees a wave of service sector PMIs published, with numbers reported from Japan, China, the Eurozone, the UK and US. In addition, several central banks hold monetary policy meetings this week; the Reserve Bank of Australia convenes on Tuesday, while policymakers from the Bank of Canada and Reserve Bank of India gather on Wednesday and Thursday respectively, when the final estimate for Japan’s first quarter (Q1) growth is also disclosed. On the same day, Eurozone employment numbers and a third estimate for the bloc’s Q1 GDP growth are issued. China’s latest inflation numbers are announced on Friday.
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