In the United States, weaker activity levels are most evident in the key sector of construction, following the sharp rise in mortgage rates. Household consumption and business investment are nevertheless continuing to grow at a fairly robust pace. In Europe, the slowdown is primarily hitting the manufacturing sector, which is particularly affected by supply chain disruption and soaring energy costs, while service activities are benefiting from the gradual easing of Covid restrictions.
Persistent inflation is raising fears of stagflation and even recession
In China, the near-closure of entire metropolitan areas such as Shanghai has caused almost all activity indices to collapse, jeopardising the official GDP growth target of 5.5% for the year as a whole. In Japan, stagnant wage growth is eroding household purchasing power in real terms despite lower inflation than in Europe and the US. Globally, persistent inflation and the post-pandemic normalisation of public spending are raising fears of stagflation and even recession.
First ECB rate hike likely in July
After the Federal Reserve raised its key interest rate by 50 basis points at the last Monetary Committee meeting at the beginning of May, Fed Chair Jerome Powell made it clear during the month that the process of reducing inflation to 2% may be painful but there is no other way to prevent inflation from getting entrenched in the economy at high levels. In the eurozone, the ECB keeps saying that the asset purchase programme will end at the beginning of the third quarter and that interest rates will start to be raised at the Governing Council meeting on 21 July.
Long-term interest rates continue to rise in the eurozone
In the United States, the first signs of inflation stabilising have, at least temporarily, halted the upward movement in government bond yields. Overall, the ten-year reference rate declined in May. In the eurozone, record inflation figures led to a further increase in long-term interest rates.
Low volatility on the stock markets
Equity market volatility was contained in May, with most equity indices posting little change over the month as a whole. In terms of sectors, energy stood out once again, gaining almost 10% over the month and up 40% year-to-date. Consumer stocks were particularly weak, with consumer discretionary trailing the sector performance rankings since 1 January.