Macro Weekly Will the global economy gain momentum?
Group Economics
Han de Jong +31 20 628 4201
22 May 2015 2015 is shaping up to be another year of more negative global growth surprises than positive ones. Financial market participants and policymakers have to ask how bad it really is. I would suggest to be patient. Global growth is perhaps not great, it is not a disaster either. And we continue to believe that growth will pick up. The picture that is likely to emerge in the course of the year is actually a relatively benign one with improving growth, modest inflation and central banks determined not to rock the boat. Recent data
in Japan was stronger in May than expected and registered its
The week just gone by was relatively light on economic data.
first rise after three monthly declines.
Eurozone data had consistently surprised positively earlier this year, but that pattern is now changing. Perhaps expectations
Big unknown
have adjusted to the relatively favourable performance or
The big unknown really is the US. After a disappointing start to
perhaps the tailwinds (oil, the euro exchange rate) have eased
the year the US economy was expected to bounce back as the
a little or perhaps the disappointments elsewhere are weighing
earlier weakness was thought to be caused by temporary
on activity. Nevertheless, I don’t think recent data is particularly
factors. Recent data, however, is unconvincing. This raises the
negative. Germany’s authoritative Ifo index of business
question as to whether we should still expect the economy to
confidence fell marginally in May (108.5 versus 108.6 in April).
gain momentum soon or whether there is a more fundamental problem.
German Ifo Index
Consumer spending has not been poor, but consumers have
115
certainly not (yet) spent their windfall from the lower oil prices.
110
Various theories are offered as explanation. Some suggest
105
that consumers are cautious because they continue to
100
strengthen their balance sheets. That is not very compelling to
95
me. Of course, if consumers do not spend their unexpected
90
gain in purchasing power the inevitable result is that the
85
savings rate rises and this can be seen as an strengthening of
80
balance sheets. The problem is that we do not know if the rise
75 05
06
07
08
09
10
11
12
13
14
15
Source: Bloomberg
in the savings rate was intentional or happened by default. Looking at consumer confidence surveys it seems to me that it is hard to argue that consumers are particularly worried. So my guess would be that it is by default. This is a pattern we have
The long-term average for this series is 101.4 and its range
seen before following sharp declines in oil prices. So: let’s be
over the last 25 years has been 114-84. Having said that, it is
patient.
true that the forward-looking part of the survey has now fallen for two consecutive months. This is essentially a trend we see
Another explanation offered is that consumers will not spend
in many other indicators in the eurozone. I simply do not see
their windfall if they think that the drop in oil prices will not last.
why growth in the eurozone should weaken significantly in the
That could be the case. Indeed, oil prices have risen sharply
near term. In fact, I see reason for optimism. The credit
since their trough in January. On the other hand, we think
channel continues to unclog. And the recent preliminary PMIs
current conditions in the oil market suggest there is a
showed an improvement in the manufacturing sector after a
significant glut. In fact, we think that oil prices are more likely to
one-month decline. Manufacturing is more cyclical and tends
fall in the near term than to rise. In any event, we believe that
to be leading other sectors in the economy. The similar gauge
at least part of the fall in oil prices will prove to be durable. As
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Macro Weekly - Will the global economy gain momentum? - 22 May 2015
a result, it seems reasonable to assume that consumer
Evans’ view
spending will strengthen in the course of the year.
However, given recent economic weakness, the Fed cannot be sure that the economy will gain further momentum. In addition,
Emerging economies not looking fantastic
there is a question as to whether or not inflation will accelerate.
Momentum in emerging economies has been relatively poor
I attended a conference this week organised by the
this year, at least in Asia and Latin America. I have
Bundesbank and the US National Association for Business
commented many times before on this. We do not expect
Economics. Charles Evans, the president of the Chicago Fed
major changes on this front. That means that we do not expect
was the keynote speaker. He held a compelling argument that
a spectacular improvement, but, equally, we do not expect a
the Fed should not be in any sort of hurry and should only
material further deterioration either.
move when it is absolutely certain its inflation mandate is achieved. The Fed has an inflation objective of 2%. This is an
Monetary policy
average they should achieve over a longer period. The
Taken together this means that we expect the global economy
measure used is currently standing at 1.3%. Evans pointed out
to show accelerating growth in the course of the year. Against
that the Fed has undershot its inflation target since 2008. It is
that background, inflation should remain very subdued and
damaging to a central bank’s credibility to undershoot its
central banks will be keen not to cause any shocks.
inflation target for a long time as that will have an undesirable impact on the behaviour of economic agents. Evans believes,
The ECB’s position is very clear. It has started a QE
having undershot the target for almost seven years now, the
programme in March and, so far, feels that the programme is
Fed should aim to overshoot the target for a while in order to
very successful. The recent sharp rise in bond yields came as
establish credibility that its target is a symmetrical target. If it
a surprise and I see that commentators are trying to explain
was up to Evans alone, I think any tightening of US monetary
why it happened. It seems to me that the more difficult
policy would be in the distant future.
question is why investors were willing to hold so much paper at negative yields before they rose. Meanwhile, the sharp rise in
To be honest, I have a lot of sympathy for Evans’ argument.
yields, even if it was from hard-to-explain yield levels to still-
However, he is an acknowledged ‘dove’ and his view is clearly
extremely-low yield levels, has alarmed the ECB. And
on the fringe of the whole FOMC. I pointed that out and asked
understandably so. I do not think that the ECB is worried about
him if he felt he would be able to convince his colleagues on
10-yr Bund yields at 0.60% but if the rise were to continue and,
the FOMC that they should hold off? His response was that he
as a result, the euro were to strengthen significantly, that
did not know. He added that the date of the expected first rate
would not be welcome. The ECB’s response has been clear.
hike has been consistently pushed into the future for a long
Through some statements and a commitment to increase
time. Our view remains that the first hike will take place in
purchases in the near term, the ECB has made its intentions
September. But we acknowledge that the risks that it will be
very clear. They will try to resist a sustained rise in yields or
later are considerably bigger than that it will be earlier. In any
the euro. And the market has listened: Bund yields have
event, the Fed will be keen not to give rise to shocks on
stabilised and the euro has given back some of the gains it had
financial markets.
made. US Fed’s position more complicated The US Federal Reserve is in a more complicated position. It ended its QE programme over half a year ago and now has to determine when to take the next step in the process of normalising monetary policy, and what that step should be. Until recently, it seemed quite obvious. The economy was growing above trend, the labour market was getting tighter and it seemed just a matter of time for the Fed to raise rates. It still is, in our view, as we are optimistic on the cyclical outlook.
3
Macro Weekly - Will the global economy gain momentum? - 22 May 2015
Main economic/financial forecasts GDP grow th (%)
2013
2014
2015e
2016e
2.2
2.4
3.1
3.1
United States
-0.4
0.9
1.8
2.3
Eurozone
Japan
1.6
-0.1
1.1
1.2
United Kingdom
1.7
2.8
2.8
2.6
China
United States Eurozone
3M interbank rate
14/05/2015 21/05/2015
+3M
+12M
2015e
0.28
0.28
0.4
1.2
0.9
2016e 2.4
-0.01
-0.01
0.00
0.00
0.00
0.10
Japan
0.17
0.17
0.2
0.2
0.2
0.2
United Kingdom
0.57
0.57
0.6
1.2
1.0
2.0
14/05/2015 21/05/2015
2016e
7.7
7.4
7.0
7.0
World Inflation (%)
3.2 2013
3.3 2014
3.3 2015e
3.8 2016e
+3M
+12M
2015e
United States
1.5
1.6
0.2
2.5
US Treasury
2.24
2.26
2.3
2.8
2.7
2.9
Eurozone
1.3
0.4
0.4
1.7
German Bund
0.70
0.63
0.3
1.0
0.5
1.4
Japan
0.3
2.8
0.8
1.4
Euro sw ap rate
0.97
0.97
0.6
1.3
0.8
1.6
United Kingdom
2.6
1.5
1.1
1.9
Japanese gov. bonds
0.45
0.41
0.6
1.0
0.7
1.0
China
2.6
2.0
2.0
2.5
UK gilts
1.99
1.98
1.6
2.3
2.0
2.7
World Key policy rate
4.3 21/05/2015
4.0 +3M
3.7 2015e
3.8 2016e
14/05/2015 21/05/2015
+3M
+12M
2015e
2016e
Federal Reserve
0.25
0.25
0.75
2.25
EUR/USD
1.14
1.11
1.10
1.05
1.00
1.15
European Central Bank
0.05
0.05
0.05
0.05
USD/JPY
119.2
121.0
122
130
128
135
Bank of Japan
0.10
0.10
0.10
0.10
GBP/USD
1.58
1.57
1.55
1.52
1.49
1.51
Bank of England
0.50
0.50
0.75
1.75
EUR/GBP
0.72
0.71
0.71
0.69
0.67
0.76
People's Bank of China
5.10
5.10
4.85
4.85
USD/CNY
6.20
6.20
6.22
6.35
6.30
6.40
10Y interest rate
Currencies
Source: Thomson Reuters Datastream, ABN AMRO Group Economics.
KEY MACRO EVENTS Day
Date
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Monday
25/05/2015
01:50:00
JP
Merchandise trade exports - % yoy
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
26/05/2015 26/05/2015 26/05/2015 26/05/2015 26/05/2015 26/05/2015 26/05/2015
09:30:00 14:00:00 14:30:00 15:00:00 15:00:00 16:00:00 16:00:00
NL HU US US US US US
Wednesday
27/05/2015
16:00:00
Thursday Thursday
28/05/2015 28/05/2015
Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday
29/05/2015 29/05/2015 29/05/2015 29/05/2015 29/05/2015 29/05/2015 29/05/2015 29/05/2015 29/05/2015 29/05/2015 29/05/2015
Consensus
Apr
8.5
Producer confidence manufacturing - index Base rate -% New durable goods orders - % mom S&P/Case Shiller house price index FHFA house price index - % mom Conference Board cons. confidence - index New homes sold - % mom
May May 26 Apr Mar Mar May Apr
3.3 1.80 5 0.9 0.7 95.2 -11
1.65 -0.1 1.1 0.7 95.0 4.5
CA
Policy rate - %
May 27
0.8
0.8
11:00:00 16:00:00
EC US
Economic sentiment monitor - index Pending home sales - % mom
May Apr
103.7 1.1
103.6 1.1
01:30:00 01:30:00 01:50:00 08:45:00 10:00:00 10:30:00 14:00:00 14:00:00 14:30:00 15:45:00 16:00:00
JP JP JP FR EC GB BR IN US US US
CPI - % yoy Unemployment - % Industrial production - % mom Consumer spending - % mom M3 growth - % yoy GDP - % qoq GDP - % yoy GDP - % yoy GDP - % qoq annualised Chicago Fed - business confidence - index Univ. of Michigan cons. confidence - index
Apr Apr Apr P Apr Apr 1Q P 1Q 1Q 1Q S May May F
2.3 3.4 -0.8 -0.6 4.6 0.3 -0.3 7.5 0.2 52.3 88.6
4.8 0.4 -1.6 7.3 -0.9 53.4 91.2
ABN AMRO
3.0 1.65
0.8 94.0 5.0
103.5 1.5
-0.6 92.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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