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Developments in the global economy

Written and accurate as at: Mar 07, 2019 Current Stats & Facts

Central banks around the world are recalibrating investor expectations of future monetary policy moves. Weak domestic economic data has reinforced the belief that the next move by the Reserve Bank (RBA) may be to cut official interest rates. In the US, the Fed has continued recent guidance that the prospect of further rate hikes through 2019 should be tempered.


The Wage Price Index increased by a seasonally adjusted 0.5% in the December quarter to be 2.3% above year ago levels. The RBA noted it is expecting an improvement in disposable income in its latest testimony the House of Representatives Standing Committee on Economics. However, the latest figures continue the trend of the past five years where quarterly wages growth has largely been limited to 0.5%. Earlier in the month, retail sales figures for December were released showing a seasonally adjusted 0.4% fall in spending. This follows a 0.5% increase in November. Construction related data continues to show the risks in this area with the value of work done falling 2.5% in the December quarter with most of this concentrated in residential and engineering construction. The more forward-looking building approvals figures also fell sharply in December.


The Fed Chair Jerome Powell’s recent comment that “crosscurrents and conflicting signals” are being observed provides a succinct summary of US economic data. US retail sales fell by 1.2% in December from a month earlier, the worst monthly result in almost 10 years. However, consumer confidence appears to have rebounded with the preliminary reading for the Michigan consumer sentiment survey increasing to 95.5 in February from 91.2 a month earlier. Manufacturing surveys also took on a more positive tone, partly as a result of encouraging signs in the tariff negotiations. Meanwhile, nonfarm payrolls increased by 304,000 in January, following a revised 222,000 rise in December. The US government shutdown has had some impact on labour force data with the uptick in the unemployment rate to 4% due to the definition of unemployment including those temporarily laid off.

Early estimates suggest Euro area GDP increased by 0.2% in the December quarter to be 1.2% above year ago levels. This represents a further deceleration in European growth from the 1.6% rate posted in the September quarter and the 2%-plus rate seen earlier in 2018. This is likely to reinforce the European Central Bank’s (ECB) stance that current expansionary monetary settings will be kept in place for some time. Recent business and consumer surveys appear to have stabilised, but confidence in the outlook remains lacking. The Euro area business climate indicator was unchanged at 0.69 in February. By way of comparison, the indicator was above 1.4 a year ago.


The Chinese government continues to talk up the economic outlook following the recent introduction of stimulatory measures including tax cuts for small business, infrastructure spending and a cut in the reserve requirement ratio which means that banks can lend more. Chinese inflation increased by 0.5% in January, but this comes after a run of near-zero results. Over the past 12 months, prices have risen by only 1.7%. Despite signs of weakness in some areas of the economy, house prices are yet to feel the stress. Average house prices rose by 10% in the year to January. 


The preliminary reading for the December quarter showed the Japanese economy grew at 0.3% from the previous quarter, following the September quarter’s 0.7% contraction. The September quarter was impacted by a number of natural disasters which affected household spending and business investment. Inflation remains subdued with headline inflation increasing at only 0.2% in the year to January, while core inflation increased by 0.8%.

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