Global Banking Crisis Continues; Inflation Rates Remain Stubbornly High in Both Europe and the United States

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Economic data over the last month indicates that while inflation remains stubbornly high, economic growth is slowing. The base case scenario for the United States right now suggests a recession in the middle two quarters of the year. The U.S. economy should grow about 1.2 percent this year, but growth in the back half of the year will be weak.

Germany recently raised its economic growth forecast for the year to 0.4 percent, up from the previous 0.2 percent, but the environment in both the United States and Europe remains persistently difficult. It remains uncertain how sharply higher interest rates will fully impact the economy.

“Supply constraints are easing everywhere which on the surface looks like a good thing. But it likely also means that backlogs will wane in the second half of the year. In the absence of new demand, output will likely be weak,” said Shawn DuBravac, IPC chief economist.

Additional data in the April 2023 IPC Economic Outlook show:

• The U.S. economy grew 1.1 percent in the first quarter, coming in below an expected rise of 1.9 percent. However, the headline number masks underlying strength in the economy.
• U.S. manufacturing sentiment contracted for the fifth consecutive month in April. The manufacturing PMI rose 0.8 percentage points in the last month, but not enough to move back into expansionary territory.
• The European economy grew during the first quarter of the year, edging up 0.1 percent in the euro area and up 0.3 percent in the EU. The economy is up 1.3 percent in both areas compared to the first quarter of last year.
• In the EU, manufacturing output in electronics end markets rose in February, increasing 1.3% from the prior month and 2.9% from the year-ago period.