Take Two: Eurozone inflation edges back up; IMF raises China’s growth forecast

03 Junio 2024 (3 min read)

What do you need to know?

The Eurozone’s annual inflation rate rose for the first time this year in May, to 2.6%, up from 2.4% in April, according to a flash estimate. Core inflation, which strips out more volatile food and energy prices also increased, rising to 2.9% from 2.7%. Year to date, the pace of price increases had been easing towards the European Central Bank’s (ECB) 2% target, but the rise will likely cause concern about how aggressive policymakers will be when it becomes to cutting interest rates. Elsewhere, US first quarter (Q1) annual GDP growth has been revised down to 1.3% in its second estimate from an initial estimate of 1.6% amid softer consumer spending.

Around the world

The International Monetary Fund (IMF) has increased its forecast for economic growth in China for both 2024 and 2025. It now expects the world’s second largest economy to expand by 5% and 4.5% respectively, up from its previous forecasts of 4.6% and 4.1%. The upgrade comes on the back of strong Q1 data and additional policy measures recently announced by the government. The 2024 upgrade is in line with Beijing's own target of "around" 5% - which we also expect. However, the IMF warns of slower growth in years to come, predicting 3.3% by 2029 due to its ageing population and slower productivity growth.

Figure in focus: 5

Business sectors which are especially exposed to artificial intelligence (AI) are experiencing almost five times higher growth in productivity, according to a report by consultancy PwC. It said the “implications for business are huge”, noting that global CEOs anticipate that AI will deliver significant top and bottom-line benefits with 46% saying it will increase profitability, and 41% saying it will raise revenue. The report suggests that growing labour productivity is a key driver in economic growth and rising living standards, suggesting AI could be the future for tackling persistently sluggish productivity growth.

Words of wisdom

Sponge City: A Chinese urban planning model that helps flood management by using green infrastructure – such as trees, lakes and parks – instead of relying solely on drainage systems to absorb rain and prevent flooding. The Greater London Authority has described flooding as one of the main environmental risks to people living in London; the capital city becoming a “sponge city” was one solution put forward to mitigate the impacts of heavy rainfall. The Surface Water Strategic Group was created following the severe flooding London experienced in 2021, to prepare a London-wide flooding strategy due to be announced later this year.

What’s coming up?

On Wednesday the Bank of Canada holds its monetary policy meeting and a spate of final PMI covering May are issued, including those for Japan, China, the Eurozone, the UK and US. On Thursday, the ECB meets to set interest rates and European Parliament Elections also begin. A third estimate of Eurozone Q1 GDP growth is issued on Friday when the US also announces its latest employment numbers.