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Market Monitor | January 2015

Economy: US peaks, China moderate, EU lacklustre

In the global economy, diverging confidence indicators point to uneven expansion and producer confidence in manufacturing, says Edwin De Boeck, Chief Economist, KBC Group (a leading Belgian bank), while presenting his views in a Euratex convention in Brussels.

The recent trend of business and consumer sentiment indicates an increasingly uneven global growth cycle since Spring 2014:

  • In the US both producer and consumer confidence are at or close to their 7-year peak
  • China is muddling through, with growth still above 7 per cent and stable, but significantly weaker than in 2009-2011
  • In the Eurozone, confidence indicators point to a clear loss of growth momentum since Q2 2014.

After a weak start of the year, US GDP growth strongly rebounded to about 4 per cent since Spring 2014 and will in 2015 be further sustained by income growth resulting from accelerating job creation, higher wages and lower energy prices; acceleration of corporate investment and further improving housing market.

Solid growth and a continued decline of unemployment will lead to a first interest rate hike by the Federal Reserve in mid-2015. This will support a further appreciation of the USD against the Euro. In spite of a strong slowdown of property investments and weaker exports, government stimulus will allow real GDP-growth in China to stick close to the official target (7.5 per cent). The changing growth pattern of China (less investment, more consumption) softens China's demand for oil and commodities, which together with abundant supply will continue to depress oil and most commodity prices in 2015 adding to growth problems in commodity producing economies (e.g. Russia and Brazil) but benefiting other emerging economies like India and Mexico.

After some signs of recovery at the end of 2013 and early this year, the Eurozone's economy has again been slowing down since Spring 2014 thereby increasingly 'decoupling' from growth in the US (since 2010) and the UK (since 2012); although Germany clearly outperformed the rest of the Eurozone, also German growth dynamics have since 2011 been adversely affected by the Euro crisis, and more recently by weaknesses related to the Ukraine crisis and softer import demand from China; this was exacerbated by a sharp slowdown in France and a protracted recession in Italy; however, in contrast with 2011, recent disappointing growth did not result in major financial turmoil or a return of the Euro crisis, as fragile 'peripheral' countries like Spain, Portugal and Ireland continued to recover relatively well and the European Central Bank has now adopted a very supportive monetary policy to guarantee the stability of the Euro.

Altogether, growth in the Eurozone is expected to moderately accelerate in 2015 (no triple dip recession): assuming no new escalation of the Ukraine crisis, the drag on manufacturing sectors will gradually fade and exports from the Euro Area will benefit from the depreciation of the Euro; lower oil prices have a positive impact on profit margins in the corporate sector and on disposable income of households.There is good news and bad news

Good news: 

  • Solid growth in the US will stay on track
  • Stronger dollar (= weaker Euro) and lower oil prices as well as improving domestic demand fundamentals will help to avoid a 'triple dip' recession in the Eurozone and the ECB´s activism will likely counter the risk of deflation and another major financial destabilisation in the Eurozone
  • Interest rates will stay very low.

Bad news:
All the good news is uncertain as risk related to the Ukraine crisis, China, and lack of policy coordination in the Eurozone persist. 


Source: Economic Outlook 2015, "Legacies, clouds an

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