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ECONOMIC DATA ANALYSIS - SIGNS OF A SLOWDOWN
ANALYSIS FRIDAY 21 FEBRUARY 2014
SIGNS OF A SLOWDOWN
• Q1 global
GDP growth signals continue to soften
inflation watched, but further fall required to prompt ECB policy response
over deal leaves Ukraine on a knife-edge
Signs of a slowdown... The softer tone of recent economic
data has added to concerns that global growth may have slowed a little in Q1.
The past week has been no exception, with China’s manufacturing PMI dropping to
a seven-month low, and the US Empire and housing starts surveys posting sharp
declines. Similarly, in the UK, there have been signs of a data fade. While the
timing of the Chinese New Year and extreme weather conditions in the US and the
UK have almost certainly affected these outcomes, we doubt temporary influences
tell the whole story.
Downside risks to Q1 GDP... There remain growing concerns that
China’s economy is starting to flag, while the recent weakness in some of the
forward-looking indicators in the US and Europe suggest a broader softening/inventory
correction may be underway. Whatever the cause, the recent weakness could have
a key bearing on Q1 GDP. Economic developments over the coming week will be
watched for what light, if any, they shed on the pace of recovery and, by
extension, the implications for policy.
Ukraine on a knife-edge.... Half an eye will also be on
geopolitics, with the situation in the Ukraine on a knife-edge. At the time of
writing, confusion surrounds whether or not a deal has been struck between the
Ukraine government and opposition leaders. Failure to stem the civil unrest
risks heightening tensions between Russia and the West, with potentially far
more serious implications. The unrest in the Ukraine will no doubt be a key
topic of discussion at the G20 meeting in Sydney over the weekend.
Euro area headed for deflation?... In the euro area, key CPI data are
due (Fri). Given the strength of the euro, subdued commodity prices and a substantial
output gap, we look for annual CPI to drop to 0.6% in February from 0.7% in
January. Another weak inflation reading would inevitably heighten speculation
of a possible ECB policy response at next month’s Council meeting. Much, however,
will depend on how the growth outlook evolves. Before the CPI data, the German
IFO Business Climate (Mon) and the European Commission Business and Consumer Confidence
surveys (Thurs) are released. Last month, the IFO hit a 2 1/2 year high. We
look for it to remain broadly unchanged at 110.7, although the softening in the
February ‘flash’ PMIs and latest ZEW survey heighten the downside risks. Euro
area business and consumer confidence are also expected to be little changed.
US data likely to be weather distorted... In the US, Q1 data should be
treated with some caution given the uncertain impact of the weather. New home
sales (Weds), durable goods orders (Thurs) and the Chicago PMI (Fri) could all
be weather affected. Fed Chair Yellen may say more on thisin her testimony to
the Senate (Thurs). The second release of US Q4 GDP data is due (Fri). It too
is expected to be a little softer due to downward revisions to consumer
spending and net trade (we look for annualised growth of 2.6%vs 3.2% in the
UK Q4 GDP to remain unchanged... The second estimate of Q4 GDP is
also due in the UK. We expect it to remain at 0.7%q/q (Weds). Although December
industrial production was weaker than expected, construction output was revised
up, leaving the net impact on Q4 GDP unchanged. Other UK data in the coming
week include the Lloyds Bank Business Confidence Barometer, GfK consumer
confidence and BBA mortgage approvals. As in the US, there is a risk that these
are weather impacted. On the policy front, BoE Governor Carney participates in
a panel discussion on financial stability in Frankfurt (Fri). Any further
thoughts on forward guidance/ macroprudential measures will be scrutinised.
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