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Global
IMF annual forecast: Global growth, currently estimated at 3.1 percent in 2015, is projected at 3.4 percent in 2016 and 3.6 percent in 2017. The pickup in global activity is projected to be more gradual than in the October 2015 World Economic Outlook (WEO), especially in emerging market and developing economies.Risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy: a generalized slowdown in emerging market economies, China's rebalancing, lower commodity prices, and the gradual exit from extraordinarily accommodative monetary conditions in the United States. If these key challenges are not successfully managed, global growth could be derailed.
Further the report said that in '2015, global economic activity remained subdued. Growth in emerging market and developing economies-while still accounting for over 70 percent of global growth-declined for the fifth consecutive year, while a modest recovery continued in advanced economies. Three key transitions continue to influence the global outlook: (1) the gradual slowdown and rebalancing of economic activity in China away from investment and manufacturing toward consumption and services, (2) lower prices for energy and other commodities, and (3) a gradual tightening in monetary policy in the United States in the context of a resilient U.S. recovery as several other major advanced economy central banks continue to ease monetary policy'. (IMF, World Economic Outlook Update, January 2016)
US Fed hints at global economic jitters: In January, oil prices sank, pulling stock down prices with them. The big losses have caused concern at the Federal Reserve.
"At this point, it is difficult to judge the likely implications of this volatility. If these developments lead to a persistent tightening of financial conditions, they could signal a slowing in the global economy that could affect growth and inflation in the United States," said the Fed's Vice Chairman Stanley Fischer.Earlier he had said that up to four rate hikes were possible this year. That now seems doubtful.(RTT News February 1, 2016)
North America
US Manufacturing - Though the purchasing managers index (PMI) rose slightly from 48 in the previous month to 48.2 in January, nevertheless the manufacturing sector in the US witnessed a decline, according to the Institute of Supply Management. Any number below 50 shows a contraction. Analysts had expected a figure of 48.3.
Manufacturing employment too saw a decline as the employment index fell to 45.9 in January, from 48 in the earlier month. However, the production index crossed the psychologically important level of 50, going up from 49.9 to 50.2. New orders index too witnessed a increase in January.
US Personal Incomes and inflation - According to the US Commerce Department, personal incomes in the USincreased a little in December, matching analysts' expectations.Still, personal spending remained almost unchanged, increasing just 0.1 percent in real terms.
Overall inflation grew 1.4 percent in annual terms, while core inflation, sans food and energy prices, actually slid by 0.1%. (RTT News February 1, 2016)
Europe
UK Manufacturing - The Markit/Chartered Institute of Procurement & Supply Purchasing Managers' Index for manufacturing revealed that British manufacturing grew the fastest in three months. The index increased from 52.1 in December to 52.9 in January. This beat economists' predictions, who were expecting a reading of 51.8.Readings above 50 show expansion. The index had remained stuck at 50 for nearly three months.
New work orders from domestic businesses picked up pace in January, while new export orders fell. On the employment front,growth in manufacturing jobs has shrunk in four months out of the last six months.
UK Economy - Inflation remained low, as both input and output prices sank, the latter for the fifth straight month. "Subdued growth, rising global headwinds and a lack of inflationary pressure provide further cause for the Bank of England to push its first rate increase into the back and beyond of 2016," Rob Dobson, a senior economist, at Markit said.
The expected Stamp Duty rise scheduled for April, meant that mortgages rose higher than expected in December to 70,837, a four month high.
Total lending in December grew GBP 4.4 billion, or 0.2 percent while Consumer credit increased at GBP 1.2 billion or 0.7 percent. Lending to non-financial business declined GBP 3.7 billion.
ECB may reconsider policy stance - The European Central Bank could reconsider its policy stance, Benoit Coeure Executive Board member revealed. The region should unite to improve capacities to face its economic challenges, he added.
"But for the recovery to become structural - and thus to increase growth potential and reduce structural unemployment - monetary policy does not suffice. We should be under no illusions: if downside risks to the recovery were to materialize, this would not make it easier to respond to the refugee crisis or to counter terrorism. Our goal should be to design a political strategy to broaden the scope of integration so as to make EMU truly sustainable; to achieve this, we will need new political convergence to accompany new economic convergence," he opined. (RTT News February 1, 2016)
Asia
Bank of Japan initiates negative interest - The Bank of Japan, BOJ, pulled a major international surprise at its policy meeting in January, by pushing interest rates into negative territory. However it left its huge asset purchase plans untouched.
Given weak commodity prices, the BOJ is struggling to keep inflation at the target level of 2 percent. The policy board voted 5 to 4, to apply a historic rate of -0.1 percent. The board made its point clear when it said that it would not hesitate to make further cuts if found necessary.Though this made international headlines, the fact of the matter is that in a three tired structure of interest rates, this negative rate will not affect all sections of the financial sector equally.
The BOJ predicted an inflation rate of 0.8 percent in 2016, compared to the annual rate of 1.4 percent in October last. The economy is expected to steam ahead at a better than expected pace of 1.5 percent in 2016. (RTT News January 29, 2016)
China - Growth in China is expected to slow to 6.3 percent in 2016 and 6.0 percent in 2017, primarily reflecting weaker investment growth as the economy continues to rebalance. The IMF was optimistic that the Chinese economy was evolving along predictable lines despite exports and imports declining more than expected.Yet this is having a spill over effect on other economies, according to the IMF.Further, falling commodity prices is eroding business confidence leading to volatility in financial markets. Manufacturing and trade remain weak, the IMF said.Investment is down, particularly in the mining sector. Economic weakness in other emerging countries is also weighing down on trade prospects.
However China's services PMI jumped to 52.4 in January the highest in six months.This contrasts with a reading of 50.2 in December.Rise in new businesses pushed growth it was revealed.
Indian Economy
IMF on India - India and the rest of emerging Asia are generally projected to continue growing at a robust pace, although with some countries facing strong headwinds from China's economic rebalancing and global manufacturing weakness. IMF clocks India's growth at 7.3 percent in 2015, while the economy is expected to grow 7.5 percent in the next two years.(IMF, World Economic Outlook Update, January 2016)
Economic growth accelerates - Indian private sector posted the quickest growth in a year, as the seasonally adjusted Nikkei Composite Output Index climbed from 51.6 in December to 53.3 in January. Growth was pushed up as both manufacturing and the services sector recorded solid gains. Any level above 50 indicates growth. New orders in the services sector increased for the seventh straight month, while employers added new jobs in their enterprises. Growth in the sectorwas at a 19 month high in January.Input prices showed an upward trend in January, while factory gate prices tended to be stable.
Structural Changes - Net importers of commodities like India, are facing 'reduced inflation pressures and external vulnerabilities,' the IMF said in its report. However, currency depreciation along with lower capital inflows could limit the elbow room for monetary easing to support demand growth. 'Policymakers in emerging market and developing economies need to press on with structural reforms to alleviate infrastructure bottlenecks, facilitate a dynamic and innovation-friendly business environment, and bolster human capital', the report states.
Indian Markets
Indian markets witnessed the worst start to a new year in January 2016 since the financial crisis in 2008. Analysts however were optimistic, citing assurances from central bankers of enough liquidity. Foreign Institutional Investors, FIIs, pulled out 11,126 crores in January. This assumes significance for the fact that many of these FIIs make decisions on funds allocations at this time of the year.Yet India is expected to keep its overweight rating in the current calendar year.
"The global central bankers such as Bank of Japan (BoJ), European Central Bank (ECB) and US Federal Reserve are creating a constructive environment with their monetary policies. We believe their efforts will boost sentiments in financial markets and soon global fund flows will turn positive," said Gopal Agarwal, chief investment officer at Mirae Asset Global Investments.
The BSE Sensex tanked 4.77 in January, modest in comparison to the 22.65percent drop of China's Shanghai Composite Index and the 9.94 percent fall of Brazil'sIbovepa in the same period."The absence of foreign fund inflows is matter of concern for near term, but if one believes India's long-term story then it's a buying opportunity, because the index is trading around 15.5 times to its one-year forward earnings, which is around the long-term average," said Gautam Sinha Roy, fund manager at Motilal Oswal AMC. (Economic Times, 30 January, 2016)
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