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ECONOMIC DATA ANALYSIS - G20 MEET AMID GROWING CURRENCY TENSIONS
ECONOMIC DATA ANALYSIS FRIDAY 8-14 FEB 2013
G20 MEET AMID GROWING CURRENCY TENSIONS
• G20 meeting’s global growth focus diverted by ‘currency war’ fears?
• President Obama’s State of the Union address to focus on need for fiscal deal
• BoE’s Inflation Report to suggest policy status quo in Governor King’s last months
Central bank communication dominates action.. Central bankers stole the headlines this week. BoE Governor-in-waiting Carney spelt out his thoughts on monetary policy. His comments were circumspect with five months to go until he takes office and eight other committee members to convince. Yet he signalled a shift in emphasis from Governor King, stressing the role of communication. This was echoed by ECB President Draghi, who steered a tight course in his latest press conference, easing the euro lower.
G20 global vision turns parochial ? ... The upcoming G20 meeting in Moscow is billed as a chance to assess the global economic outlook. Two subtexts look set to dominate. Global corporate taxation remains uppermost in many indebted governments’ minds and the first OECD report on this topic may initiate a coordinated global response. Additionally, markets will watch for any criticism of Japan over its latest policy actions and the drop in the yen - the latest round in the ‘global currency war’. The Bank of Japan looks set to upgrade its economic outlook in the coming week, taking account of the announced fiscal stimulus and recent currency depreciation. It is unlikely to change policy at its meeting on Thursday. However, the G20 will be keen to avoid ‘beggar-thy-neighbour’ policy proliferation.
A taxing State of the Union? ... President Obama will also convey his vision for the US in Tuesday’s State of the Union address. These addresses are far-reaching by tradition, yet the heart of this year’s address looks set to be US fiscal policy. Following recent speeches, Obama looks set to urge a fiscal deal to avoid the impact of sequestration, which would strip $85bn from spending by end September and an estimated 0.8% off GDP by end-2013. US economic releases over the coming week look set to emphasise the urgency of such a deal. Our Global team forecast a 0.1% drop in January’s retail sales, in part reflecting the increase in payroll taxes; consumer sentiment is forecast to remain subdued as rising gasoline costs threaten to add to the fiscal uncertainty; and both are likely to keep the Empire State survey subdued at -4. January’s industrial production looks set to rise modestly as utility production recovers after December’s mild weather.
Bleak Q4 to give way to firmer 2013 ... This week’s high profile EU Summit for a Budget deal and Irish developments mean European finance
ministers may hold a ‘strategic’ set of meetings in the coming week - rather than the crisis meetings of more recent history. Headlines later in the week look set to be grim, with euro area preliminary Q4 GDP forecast to drop by 0.5%, including a 0.5% contraction in Germany. However, activity looks to have turned a corner, particularly in Germany, with a firming in global demand. We forecast Germany returning to growth in Q1, and the euro area following later in the year. But, with an expected 0.3% fall in euro area GDP over 2013 as a whole, finance ministers must press on with growth-boosting reforms particularly with unemployment at record highs.
Focus turns to Inflation Report ... With much attention on his successor this week, BoE Governor King will return to the fore in the coming week presenting his penultimate Inflation Report press conference. The Bank’s medium-term forecasts are unlikely to change much, although we expect discussion of upside inflation risks in the wake of sterling’s fall this year. January’s CPI inflation looks set to remain at 2.7% in the coming week, but we expect rising energy and food prices to push inflation back above 3% in the coming months. Inflation, combined with concerns over supply capacity and risk pricing, look likely to keep the MPC on hold until the new Governor arrives in July
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