Economic Outlook – 28 February 2016


Data increasingly support the notion that the economy should be able to withstand the global slowdown. The economy grew more than initially reported in Q4 of 2015 while growth in the current quarter is also holding up, with monthly data pointing to a strong performance in consumption and residential investment.

Fourth quarter US GDP was upwardly revised to a 1.0% annualised increase. A lesser drag from inventories and international trade were behind the surprise revisions. Consumer confidence declined in February, with the financial market volatility likely weighing on the index. Both personal income and spending, however, reported healthy gains to start 2016 and the University of Michigan Consumer Sentiment Index rebounded in late February.

Housing data were mixed on the month, as existing home sales rose but new home sales declined in January. The factory sector finally showed signs of improvement, with durable goods orders rising solidly.

The US monetary policy Forum later this week will focus on the Fed’s communication and international monetary synchronisation. Watch out for comments on monetary policy and hints about upcoming changes to the Fed’s communication at the 16 March FOMC meeting.


Up to the first half of 2015, the German corporate sector faced very favourable conditions. In 2015, economic activity held up well, as the stagnation in world trade was more than offset by buoyant domestic demand. Both the ZEW and IFO business cycle indicators have started to decline because of a deteriorating outlook. The sharp deterioration in the IFO expectations index highlights the risk that the slowdown could be more pronounced and longer lasting than previously anticipated.

The above may have an impact on German Bunds. Over the next six months, the expectation is for the current financial turmoil to ease and the safe-haven-driven to decline in longer German government bond yields will at least partially rebound.

The financial turmoil and concerns about commercial banks in Italy in particular have increased capital flight to safety and have put pressure on long German government bond yields.


Retail sales dropped slightly below normal but orders remained above expectations, according to the CBI’s latest quarterly Distributive Trades Survey. The survey of 124 firms consisting of 68 retailers showed that retail sales growth slowed in the past 12 months up to February, in line with expectations, and was a little below average.

The UK manufacturing sector stabilised somewhat in February, reporting little change on January’s muted performance, according to the CBI Industrial Trends Survey. The survey of 497 manufacturers found that total order books remained steady after a fall in January, while export orders saw a very slight improvement from the previous month.

UK consumers seem to have turned more negative in January according to latest consumer confidence survey conducted by GfK. The housing market and the Sterling are taking a hit from the uncertainty about whether the UK will stay in the EU.


This round of G20 meetings could hardly have been more appropriately located. Chinese economic and financial developments have been front and centre in recent months, as worries of the economic slowdown and spillovers, potential for further policy missteps, and surging financial volatility all manifested on global markets.

The meeting will be very interesting in the light of the recent market turmoil and the concerns about slowing global economic growth and central bank fatigue.

The IMF has already put pressure on the G20 members to come up with a strong policy response, both national and multilateral. The IMF calls for both fiscal policies (where there is fiscal space) and balance sheet repair in the financial sector, as well as preparedness of a coordinated G20 plan.


Sources: Danske Bank, TD Economics, BNP Paribas, Handelsbanken, Wells Fargo.