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Economic Update

Written and accurate as at: Oct 28, 2016 Current Stats & Facts

Developments in the global economy

Australia

The RBA left the official cash rate uncharged at 1.50% at its September and October policy meetings. It gave little indication that it was considering further rate cuts – a view increasingly adopted by bond markets. Activity data remained robust with real GDP rising 3¼% over the year to the June quarter, supported by public demand and inventories. Consumption has weakened lately, but strong August retail sales growth is encouraging. Moreover, consumer confidence has improved in recent months and together with higher house prices should provide support to spending in the coming quarters.

US

The Fed moved a step closer to raising interest rates. While it kept policy unchanged in September, three of the committee members dissented in favour of a rate hike. The Fed flagged its view of a strengthening case for a rate hike, and also noted the risks to the outlook were more balanced. However, it also downgraded the projections for potential growth and the medium-term path for interest rates. The data flow released over the past month remains supportive. Payrolls rose by ~150k, taking the three month rolling average gain to ~230k, while jobless claims remain near historic lows. Wages growth continues to edge higher, albeit slowly. Meanwhile, the Manufacturing Institute for Supply Management report rebounded in September, showing a sharp rebound in activity, and supported the outlook for businesses.

Japan

The BOJ released its comprehensive assessment of monetary policy at its September meeting. It opted to replace its bond quantity target to a bond price target, aiming to keep 10 year bond yields at 0%. The BOJ also explicitly committed to keep rates low until inflation exceeds 2%. Economic data continues to suggest the impact of negative rates and quantitative easing has been limited. Retail sales and exports continue to contract, while inflation has moved back near zero.

Europe

It was no surprise the ECB kept policy unchanged in September, in light of evidence the Eurozone is proving resilient in the face of the Brexit outcome. Consumer and business sentiment have remained firm in recent months, with the German IFO Business Climate Index picking up in September to its highest level in more than two years. Meanwhile, Eurozone retail sales recorded their strongest monthly rise in July. At its meeting, the ECB only lowered its real GDP and inflation forecasts by 0.1% for 2017, indicating confidence in the outlook. However, it was surprising the ECB did not discuss altering its quantitative easing program, which is due to expire in March 2017. In the UK, data released during September also indicated resilience. Industrial production, construction output and retail sales all beat consensus expectations; only inflation was softer than expected. The Bank of England (BOE) kept policy unchanged but left open the possibility of another rate cut.

China

The Chinese economy is starting to show some encouraging signs of stabilisation. Manufacturing activity continued to expand, with the Purchasing Managers Index at its highest level since October 2014. Indeed, industrial sector indicators have started to blossom, with year-ended growth in electricity output, freight volumes and imports all picking up in recent months. Consumer spending was better than expected, with retail sales growing 10.6% in August. Exports beat expectations, amid a weaker renminbi and higher demand from Europe and Japan. On the inflation front, CPI inflation remained subdued but producer price deflation continued to ease in August.

 

 

Disclaimer

This document has been created by Westpac Financial Services Limited (ABN 20 000 241 127, AFSL 233716). It provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information has been prepared without taking account of your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. Projections given above are predicative in character. Whilst every effort has been taken to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The results ultimately achieved may differ materially from these projections. Information in this document that has been provided by third parties has not been independently verified and Westpac Financial Services Limited is not in any way responsible for such information. Past performance is not a reliable indicator of future performance. Information current as at 5 October 2016. © Westpac Financial Services Limited 2016.

 

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