Research Briefing | Jun 2, 2023

Tight monetary policy weighs on industry in H2

Q1 global industrial activity surprised to the upside, as the impact of tighter monetary policy across numerous economies was offset by idiosyncratic factors including strong labour markets, the reopening of the Chinese economy, and the sharp fall in energy prices in Europe. Looking ahead we expect industrial momentum to slow through 2023, as the drivers of recent growth prove to be short lived and elevated interest rates curtail business and household activity.

What you will learn:

  • In the US, we forecast a stagnation in industrial production in Q2 and two consecutive quarters of contraction in H2.
  • Energy prices in Europe may have fallen sharply from last year’s peak but inflation is proving sticky, leading to two further interest rate rises in 2023. On a positive note, energy-intensive sectors such as chemicals production look to have turned a corner.
  • The removal of Covid-19 restrictions in China led to a mechanical uptick in industrial production in Q1. We look for output to slow through the rest of the year.
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