Take Two: Eurozone and Japan Q2 GDP revised down; Bank of Canada holds rates steady

What do you need to know?

The Eurozone economy showed further signs of easing after GDP growth was revised down to 0.1% for the second quarter (Q2) from a previous estimate of 0.3%, following a decline in exports. However, Q1’s original estimate of zero growth was revised up to 0.1%. Meanwhile, the bloc’s services Purchasing Managers’ Index (PMI) fell to 47.9 from 50.9 in July – a figure below 50 indicates contraction. The composite index, which also includes manufacturing, fell to 46.7 in August from 48.6 in July, the fastest rate of decline since November 2020. The decline reflected a fall in new orders and a near-stalling of jobs growth.

Around the world

Japan’s Q2 GDP growth was revised down to 4.8% annualised from the preliminary estimate of 6%, as consumer and business spending fell more than expected. Elsewhere in Asia, weaker overseas demand weighed on China’s economy in August, as exports fell 8.8% compared to a year earlier. Meanwhile the Caixin services PMI showed business activity in China increased at its slowest pace in eight months with new business from overseas falling for the first time this year. The services PMI fell to 51.8 in August from 54.1 in July, while the composite edged down from 51.9 to 51.7.

Figure in focus: 5.0%

The Bank of Canada (BoC) held interest rates at 5.0% at its latest meeting, noting the economy had entered a “period of weaker growth” and that recent evidence suggested “excess demand in the economy is easing”. At both its June and July meetings the central bank hiked rates by 25 basis points in a bid to tackle inflation; in July the annual rate increased to 3.3%, up from June’s 27-month low of 2.8%. At last week’s meeting the BoC said it remained concerned about the persistence of underlying inflationary pressures and is prepared to increase the policy rate further if needed.

Words of wisdom

Digital Markets Act: The European Union is upping its efforts to “make markets in the digital sector fairer and more contestable”. The Digital Markets Act (DMA) sets out defined criteria to identify “gatekeepers” - large digital platforms providing services such as online search engines, app stores and messenger services - who will have to comply with the new laws. Consumers, for example, will be able to better control what apps they want on their smartphone and be able to remove pre-loaded software. The DMA accompanies the Digital Services Act, which went live in August and aims to curb online hate and the spread of disinformation.

What’s coming up

On Tuesday the UK reports unemployment numbers while Wednesday sees the latest US inflation numbers announced - annual inflation rose to 3.2% in July 2023 from 3% in June, the first rise in 13 months. On Thursday markets will be paying close attention to the European Central Bank when its policymakers meet to decide on interest rates; at its July meeting, it hiked its key interest rate by 25 basis points to 3.75%, its highest in 23 years. China’s closely watched industrial production numbers land on Friday.