Developments in the global economy
Written and accurate as at: Jul 17, 2017 Current Stats & Facts
Australia
We reported on the Commonwealth Budget last month and it was interesting to see a reference to it in the Reserve Bank Board’s Monetary Policy Meeting minutes. They noted the Budget would have “little effect on the Bank’s near-term outlook for the Australian economy” and, by extension, monetary policy but highlighted the large infrastructure projects that were announced where spending will not occur until after 2019. Statistical releases showed improvement in the economy compared to earlier in the year, although not sufficient to suggest the RBA will be increasing rates any time soon. The seasonally adjusted unemployment rate fell to 5.5% in May from 5.7% a month earlier. In contrast to previous months, a 52,100 increase in full-time employment was the main driver of the lower unemployment rate, while part-time employment fell 10,100. While encouraging, the bounce in full-time employment will need to be sustained over a number of months to justify increased confidence in the domestic economy.
US
The US Federal Reserve (the Fed) increased the federal funds rate by 25 basis points to 1.25% at its June meeting, following up on the March tightening. They also discussed plans to reduce the US$4.5 trillion portfolio built up as part of the quantitative easing program, dependent on economic conditions. Economic data following the tightening was on the soft side but market expectations for at least one more increase this year remain in place. Retail sales fell 0.3% in May following a 0.4% in the previous month. Inflation data was also relatively soft with core inflation up 0.1% in May or 1.7% year-on-year. Consumer sentiment surveys have been mixed with the Michigan consumer sentiment index falling to 95.1 in June from 97.1 previously, whereas the Conference Board consumer confidence index increased to 118.9 from 117.6.
Europe
The European Central Bank (ECB) left official interest rates unchanged at zero at its June meeting, but the focus was largely on the improving economic fortunes of Europe. In the post meeting press conference, ECB President, Mario Draghi spoke of the “stronger momentum in the Euro area economy” although noted that monetary accommodation was still required due to still subdued inflation. Core inflation in Europe remains around the 1% level, while the ECB would like to see it closer to 2%. The comments on economic momentum were supported by recent surveys with the ZEW Economic Index rising to 37.7 in June from 35.1 a month earlier and negative readings a year ago.
China
Economic data showed a 0.1% decline in consumer prices in May but an acceleration in annual inflation to 1.5% from 1.2%. Nevertheless, inflation remains under control and below the 2- 2.5% average that has been seen for most of the past five years. Year on year retail sales growth continues to run at just above 10%, with money supply similarly growing at around 10%,
although it did dip below this level in May. House price growth has been gently decelerating since mid-2016 but was still increasing at a 10.4% rate in May. Note, the Chinese house price cycle is volatile and house prices fell through 2014 and into
2015 reflecting restrictive government policies.
Japan
The Bank of Japan left official interest rates unchanged at -0.1% at its June meeting but noted positive developments in private consumption and global conditions. Following the central bank meeting, core consumer price data showed a 0.4% year-on-year increase in May, a further marginal acceleration in inflation from the deflation seen through 2016.