Developments in the global economy
Written and accurate as at: Jun 15, 2017 Current Stats & Facts
Australia
The Commonwealth Budget was released early in the month with the centrepiece being the return to surplus by 2020-21. However, the introduction of a bank levy to help fund budget repair and increased banking supervision has proved a controversial measure and dominated the financial headlines for most of the month. Statistical releases continue to point to an economy struggling to gain momentum. The seasonally adjusted unemployment rate fell to 5.7% in April from 5.9% a month earlier in response to a 37,400 increase in employment. Full-time employment decreased by 11,600 but this was more than offset by a 49,000 increase in part-time employment. The quarterly wage price index data was also released reinforcing the lacklustre state of the labour market. The index increased by 0.5% in the quarter and by 1.9% compared to a year ago. The still-high unemployment rate and lack of wage increases is taking its toll on retail sales. Retail sales fell by a seasonally adjusted 0.1% in March, following a 0.2% fall in February. Over the past 12 months, retail sales have increased by 2.1% - the lowest growth rate in more than three years.
US
In last month’s report, we noted that advance estimates showed that first quarter US GDP increased at an annualised rate of 0.7%. This has subsequently been revised to show 1.2% growth, more consistent with the strength of other indicators such as employment and manufacturing surveys. Consumer spending and non-residential investment were the main contributors to growth. The strength of consumer spending reflects on-going improvements in the labour market although the most recent employment data was slightly
disappointing. The unemployment rate continues its slow grind lower at 4.3% compared to a reading of 4.4% a month earlier and 4.9% a year ago.
Europe
The election of Emmanuel Macron in France has reduced investor concerns around the stability of the European Union, but European politics remains a key uncertainty. Economic data remains constructive. The manufacturing PMI increased slightly to 57 in May from 56.7 a month earlier, maintaining the positive momentum seen in recent months. However, inflation took a tumble with headline inflation at 1.4% compared to the 1.9% reading a month earlier. This is has further dampened expectations of a European Central Bank (ECB) rate hike. The strength of some European economic indicators and the reversal of deflationary pressures had prompted some speculation the ECB would begin to reverse its extremely easy monetary policy. Recent indicators and continuing political
uncertainty likely point to an ECB that will be reluctant to tinker with current monetary policy settings.
China
Economic data was little different from previous months with April retail sales increasing by 10.7% compared to a year earlier and consumer prices increasing by 1.2% over the same period. Moody’s downgrade of China’s credit rating to Aa3 from A1 had some influence on currency markets particularly prompting some weakness in the Australian dollar but otherwise had seemingly little immediate impact. Moody’s cites high and increasing debt levels, an economy reliant on policy stimulus and expectations of growth slowing to 5% by the end of the decade as the main drivers of the downgrade.
Japan
Preliminary estimates showed the Japanese economy grew by 0.5% in the March quarter following a 0.3% rise. An improvement in net exports resulting from yen weakness against the US dollar has helped boost GDP growth but other components including consumption also contributed.
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