Economic momentum at the start of the year remains strong, in line with our expectations. After slowing in 2016, trade momentum should be boosted by a lower EUR in 2017 (1.05 against the USD) and the global growth acceleration.
Although the steep 3% month-on-month slide in industrial production in December can be partially explained by the constellation of Christmas holidays, it does mean that production in the fourth quarter of 2016 actually fell by 0.1% compared with the third quarter.
As expected, today’s ECB Council meeting was a non-event. The substantially improved economic data of late and the higher December inflation figure in the eurozone offered no grounds to put the recently extended bond purchasing program up for discussion again.
On the economic front a humming domestic economy was the hallmark of 2016. The external side provided only a limited boost. At 2.5%, German exports expanded more strongly than world trade, which more or less stagnated on average last year.
After the defeat in the constitutional referendum Italy’s Prime Minister has tendered his resignation. In the short term heightened political uncertainty is likely to weigh on financial markets and economic sentiment.
Today’s inflation numbers are moving slowly in the right direction. Although next week the ECB is likely to extend its monthly bond purchases of EUR 80bn for a few months more, we see plenty of reasons for it to simultaneously announce a reduction in the purchase volume for the time thereafter.
We expect the German economy to grow by 1.5% in 2017 after 1.9% in 2016. Consumption remains the driving force. We expect the global economic activity to pick up somewhat. The US economic outlook is surrounded by elevated uncertainty.
The Fed steered clear of changing key rates in the nervous pre-election environment. But in line with the signals it had already provided in September, it stresses that an increase in the federal funds rate is imminent.
The UK economy slowed down in the third quarter of 2016, but the GDP reading – the first official indicator of how the economy as a whole has fared following the Brexit-vote – contained little of the doom and gloom that many had expected following Britain’s decision to exit the EU
Today’s survey results confirm that the eurozone economy is ticking over nicely. In early December the ECB will probably outline its tapering plans more specifically. Hopefully it will start to taper in April 2017, which would anyway mean an extension of the bond purchasing program beyond March of next year.
Today’s purchasing manager indices (PMIs) for the eurozone suggest that the economy has lost a little momentum but remains on an upward path. Next year the eurozone economy is likely to move back up a gear.
For several months now emerging markets have been enjoying increased popularity again among portfolio investors. However, this development is not being driven by fundamental improvements in the emerging markets themselves but reflects more an at least temporary rebound in risk appetite on the international financial markets.
Not least thanks to the economic policy measures aimed at stabilizing growth, the Chinese economy in the second quarter of this year was able to maintain the pace of expansion seen in the preceding quarter.
US growth looks to have firmed up in the second quarter. The robust assessment of production and new orders in the surprisingly good survey-based indicators for June suggest that the economy is poised to make a buoyant start to the second half of the year.
At the EU summit last week, British Premier David Cameron reached an agreement with his EU peers on the renegotiated terms of Britain’s EU membership. The deal paved the way for the promised in-out referendum, which will now take place on June 23.
The jobs report for October surprised on the upside. It not only showed a return to more dynamic jobs growth compared with the preceding two months, hourly wages also picked up markedly to stand 2.5% up on a year earlier.
The decline in industrial orders for the third month running and in production for the second month in a row, together with simultaneous positive domestic figures, suggests that Germany’s export engine is sputtering due to the global slowdown.