Data, forecasts and analysis on 200 countries, 100 sectors and 3,000 cities and sub-regions
Oxford Economics is the world leader in global forecasting and quantitative analysis for business and government, and the most trusted resource for decision-makers seeking independent thinking and evidence-based research.
In our March Global macro chart book we highlight our key calls, summarise selected research and assessment, and provide our latest favourite charts.
The PBoC has cut the lending rate for the second time in four months, this time by 25bp. But over this period manufacturing price deflation has intensified, reflecting lower commodity and oil prices, more than offsetting the initial rate cut.
With real borrowing rates at risk of rising further if inflation continues to fall, we think that the PBoC will have to cut rates at least once more in 2015 just to keep monetary conditions stable.
Flash inflation for the Eurozone confirmed that the area remained in deflation. Headline inflation edged up in February to -0.3% from -0.6% in January, while core inflation was confirmed at 0.6%. February's modest final reading of the manufacturing PMI came as no surprise, with the headline number just in expansionary territory. However, different countries are moving at different speeds, with Italy now joining the growing group, leaving France's manufacturing still in trouble.
In light of the MPC’s downward revision to its 2015 inflation forecast and the Committee’s expectation that inflation will not return to target until late 2017, a unanimous vote to keep rates on hold in March’s meeting looks a near-certainty.
This morning’s data confirmed that the economy is gathering momentum once again, after the softer patch in the second half of last year. And with the stronger activity coming alongside low inflation and more sustainable trends in household lending, the data are likely to be greeted positively by policymakers who look to have plenty of scope to maintain the current policy settings for some time to come.
Manufacturing conditions improved for the second consecutive month across most of the region, with evidence that both domestic and foreign demand edged up. The fall in commodity prices over the past six months should continue to boost demand over the coming months, and would be expected to feed through to stronger trade flows in the region.
Sentiment cools on harsh weather and rebounding gasoline prices. However, consumer sentiment remains near its post-recession high, and we see gradually accelerating wage growth and low energy prices supporting further increases through 2015. An upbeat consumer will lead to consumer spending growth north of 3.0% in 2015
A downward revision to growth, but upward revision to composition. Business investment was revised up while consumer spending retained its healthy pace in Q4 2014. International crosscurrents and a stronger dollar are weighing on activity, but strong domestic fundamentals should outweigh these constraints. Oxford Economics expects GDP growth north of 3% in 2015.
High frequency data suggest that the benefits of the collapse in the price of oil have started to feed through to the real economy. PMI surveys reported an acceleration in activity in January, while data on earnings and inflation suggest that real wages have risen strongly in recent months, which should mean that consumer spending growth remains robust. In addition, there are signs that manufacturers, in particular, are starting to benefit from stronger activity in the Eurozone and the US. As such, although the second estimate for Q4 2014 left quarterly GDP growth unrevised at a slightly disappointing 0.5%, we see growth gathering momentum this year, reaching 2.8% from 2.6% in 2014. Meanwhile, the Chancellor will present the final Budget of this parliament on 18 March. The OBR’s forecasts are likely to provide him with some good news, with the short-term GDP forecast set to be revised up and the medium-term borrowing projections likely to be revised down. However, with any giveaways needing to be agreed by both sides of the coalition, we think that the chances of any substantive changes of policy are low. Therefore, aside from offering support for the ailing North Sea oil sector, we expect the Budget to be fairly low key.
January’s headline consumer spending reading for France shows households are spending at their fastest rate since 2012, with durable goods showing particular strength. We retain our view that 2015 will be the strongest year for French household spending since 2010.
Part of the reason for stronger household spending, certainly in the Eurozone’s slower-growing economies, is the ongoing fall in prices – but preliminary February data suggests deflation is starting to ease. This is in line with our expectation of falling prices for 2015 as a whole, but less so as the year goes on.
Turkey’s economy has benefited considerably from the plunge in global oil prices. But according to our updated scorecard, it remains the most vulnerable of the 13 emergers analysed here. This reflects its weak external financial situation, a prolonged period of rapid credit growth and an overly loose monetary policy. South Africa and Brazil continue to score poorly on our criteria.
Unsurprisingly, Russia is also among the most vulnerable emergers in our scorecard. At the moment, its position in the vulnerability rankings is helped by the protection of an exchange rate that has already crashed (providing some upside potential if there are no new triggers for capital flight), high real interest rates (provided that inflation does not continue to soar), and sharp declines in imports and external debt that partly offset the falls in exports and foreign exchange reserves. But these developments also highlight the economy’s instability and the possibility that the situation could rapidly deteriorate again.
Malaysia’s vulnerability ranking has deteriorated between late-October and now because of renewed pessimism about the likely current account surplus and the recent significant depletion of foreign exchange reserves compared with high levels of external debt.
The upward shift in the estimates of GDP growth over the last couple of years, following an overhaul of the national accounts, has thrown our forecasts out of kilter. Although we are doubtful of the strength in growth reported by the CSO in 2013/14 and in more recent quarters, we still look for an acceleration in growth in our short-term forecast, albeit to a lesser extent than previously. GDP growth is now expected to increase from 7.2% in calendar 2014 to 7.5% in 2015, whereas last month we had expected a pick-up from 5.3% to 6.3%. This improvement will be driven by low oil prices, easing inflation, monetary loosening and improved levels of confidence. However, the government still needs to deliver on reform in the upcoming Budget to reinforce the positive momentum.
Please don't abuse of the dreaded "D" word in this context. Headline CPI inflation fell into negative territory in January, but the driving forces are transitory. Core CPI inflation meanwhile remains well anchored. Oxford Economics foresees headline inflation hovering around zero in the next six months and some pass through to core, but deflation is not a concern.
Subdued momentum blurred by volatile aircrafts. Durable goods orders continue to move forward, but the pace has slowed since last fall. Our favored business investment gauge points to moderate activity in early 2015 as a stronger dollar and sluggish global growth restrain activity. However, we see strong domestic fundamentals and expect activity to accelerate once international headwinds dissipate.
The latest EC survey data added to the recent run of positive economic data from the Eurozone and suggest that consumers are becoming more confident in response to improving labour market conditions and the oil price slump.
Meanwhile, the acceleration in Eurozone broad money and credit growth in January is also an encouraging development. With signs that banks are becoming more willing to lend and business and consumer confidence building, further improvements may be to come.
Recent labour market data support our view that real household income growth in 2015 is on track to expand at its fastest pace since 1991. This should translate into a period of robust household spending growth, dispelling the idea that German households never spend. Indeed, even our own well above consensus forecasts for household spending and GDP growth this year could prove too cautious.
Quarterly GDP growth in Q4 was left unrevised at 0.5%, with the drivers of that growth offering reasons for both cheer and concern. Net exports made their biggest contribution to growth in two years but business investment saw the largest fall since Q2 2009. Meanwhile, the foundations for growth in consumer spending are looking increasingly robust.
Asia-Pacific currencies and stock markets have weakened over the past seven months. But bond markets have strengthened.
Bond yields may have fallen because of lower oil prices and hence inflation, but also because yields remain high by international standards, attracting inflows.
We think EM assets face downside risks in 2015 related to outbound capital flows and lower commodity prices. However, we are more favourably disposed towards domestic bonds in non-commodity exporting more advanced Asia-Pacific countries.
World trade growth picked up in 2014 and we expect further firming in 2015 and 2016. But the current upturn looks patchy and there is a risk that trade growth will continue to undershoot its long-term averages, partly for structural reasons, holding back the performance of export-oriented economies. The OE export indicator continued to point to below-average trade growth in January, and other ‘alternative’ indicators including container trade growth also suggest still-subdued trade growth. US import growth has picked up recently, however, and we expect stronger growth in the Eurozone to be an important factor buoying world trade this year and next – after a lengthy period where the Eurozone has been a drag. In Japan, export growth finally seems to be responding to a weaker yen – but import growth is still weak.
New home sales held steady in January after their December surge. Since the confidence interval around the 0.2% monthly decline was ±22%, we recommend focusing the overall positive momentum. Looking ahead, still-high affordability and accelerating wage growth should support a gradual release of pent-up demand.
India's Central Statistical Office (CSO) has rebased the country's national accounts from 2004/05 prices to 2011/12 prices. Moreover, it has also overhauled the methodology for compiling the data to bring it in line with internationally accepted standards. This has resulted in significant changes to estimates of growth in the recent past. Indeed, GVA growth in 2013/14 was revised up from 4.7% to 6.6%. This does not appear consistent with other economic indicators. However, despite our scepticism (and that of other analysts) about the figures, these are the series that we now have to forecast. On a calendar-year basis we now expect that GDP growth will pick up to 7.5% in 2015 from 7.2% in 2014, whereas in January we had expected a move from 5.3% last year to 6.3% this year.
GDP expanded by 0.4% on the quarter in Q4, driven by rising domestic demand. Consumption expenditure grew robustly and fixed investment rebounded from its sluggish performance over the past couple of quarters.
But the external sector was a large drag on growth, as imports strengthened on the back of the pick-up in domestic demand while goods exports edged lower. We expect the economy to grow by just under 3% this year, dampened by continuing uncertainty about the external outlook.
In the semi-annual congressional testimony Fed Chair Yellen shifted the forward guidance to indicate that removing or modifying the “patient” language does not mean that the Fed will necessarily raise short-term rates in the next few meetings.
This gives the Fed more flexibility in initiating rate lift-off and prepares markets.
Yellen emphasized that labor market conditions have improved substantially and if this continues as expected, and “the transitory effects of lower energy prices and other factors dissipate” then it will be appropriate to increase the target range for the federal funds rate.
Confidence plunges, but not worrisome in the wake of the January surge. Despite the pullback, confidence remains higher than in December 2014. The major factor behind the headline drop was a deterioration in consumer expectations. Overall, this report does not change our view that strong payrolls, firmer wage growth, and low inflation will support confidence and outlays in 2015.
South Africa's economy expanded by 1.5% in 2014, the slowest annual rate of growth since 2009, in part dampened by the impact of strikes in the mining sector in the first half of the year. However, GDP rose by 1% on the quarter in Q4, higher than we had expected. We forecast a modest pick-up in GDP growth to just above 2% this year, but growth could fall short of this if severe structural problems in the electricity sector are not resolved.
The US dollar has surged in recent months. With the ECB’s recent QE program announcement and the Fed likely to start raising rates later this year, we see prospects for euro/dollar parity by the end of the year.
A strong dollar appreciation will weigh on the US economy, but at the same time simulative monetary policy from central banks around the world can be viewed as "enrich-thy-neighbor" actions offsetting the drag.
We place this exchange rate analysis in the context of lower oil prices,
muted interest rates and modest inflation.
The semi-annual Humphrey-Hawkins testimony will provide Janet Yellen with the opportunity to clarify the Fed's desired path toward monetary policy normalization. With the US economy building momentum, we expect the Fed will proceed to rate liftoff in September 2015. Lower gasoline prices, gradually accelerating wage growth, and a cheerful consumer will combine to drive consumer spending. Business investment should rebound after a soft finish to 2014, though reduced oil capex will weigh on activity. Housing sector activity should also slowly rebound on gradually firmer wage growth, reduced home price inflation, and low mortgage rates. Export growth will be hindered by a sluggish global economy and a stronger dollar but should slowly strengthen as global demand rises. Despite our expectations for a couple of negative CPI readings in early summer, we believe core inflation is well anchored. As such, with wage growth accelerating, we expect stronger inflation reading in H2 will prompt rate lift-off.
The chart shows the house price indices for Tier 1 and 70 cities in China. Average house prices in China contracted by 0.4% month-on-month in January – the ninth consecutive monthly fall. We believe that the housing market should stabilise in the near term as measures adopted by the Chinese authorities in 2014 feed through.
An expected cooling in the pace of existing home sales. Sales slowed to their lowest pace in nine months in January as low inventory and higher prices hindered activity. Mortgage rates meanwhile continued to support sales. Looking ahead, Oxford Economics expects strengthening fundamentals to drive a sales rebound in 2015.
The Russian economy seems to be entering a severe recession, in line with our forecasts. Retail sales and fixed investment dropped by 4.4% and 6.3% year-on-year respectively in January.
Fighting in eastern Ukraine has become less intense since Ukrainian forces have left Debaltseve.
However, we believe that the conflict might intensify soon as rebels seem to be preparing to attack Mariupol and other towns which are currently under Ukrainian control. Moreover, there is a risk that the regular Russian army will invade Ukraine as well.
February’s small pick-up in the Ifo measure of business sentiment was a little bit of a disappointment, but the big picture is remains unchanged - timely activity indicators are still consistent with the view that the German economy performed strongly in the initial stages of this year.
French GDP growth once again disappointed in Q4, with growth coming in at 0.1% q/q versus 0.3% in the Eurozone overall. While household and government consumption, as well as net trade, all grew, gross fixed investment contracted for the fourth consecutive quarter. Looking at 2015 however, there are good reasons to be more optimistic. The combination of lower oil prices, a weaker euro and better financing conditions resulting from sovereign Quantitative Easing by the ECB should boost consumer confidence. This, coupled with lacklustre inflation – the headline measure fell sharply to -0.4% y/y in January – should give an impetus to private consumption, as well as exports. On a less positive note, we expect fixed investment to decline again this year, with firms using better economic conditions to expand profit margins, before investing more in 2016. But overall, the French economic recovery will gain traction in 2015, and the growth gap versus the Eurozone will narrow: GDP growth is expected to accelerate to 1.2% from 0.4% in 2014, and close to the 1.5% Eurozone average.
We assess in detail the crucial issues that determine if the GGB trade will end in triumph or disaster, on which basis we update our scenario tree for Greek government bonds (available in excel format to GMS/GSS clients on request). The tree delivers key event probabilities and conditional GGB valuations to various plausible outcome sequences and endgames. The analysis focuses in on five key judgments.
It had appeared likely that the January public sector finances data would be ‘make-or-break’ with regards to whether the government would achieve the OBR’s 2014-15 borrowing forecast. In the event, the January data was fairly underwhelming, but some very favourable historical revisions mean that borrowing is on track to undershoot the forecast.
Given very strong growth towards the end of 2014, January’s 0.3% monthly drop in retail sales volumes need not be too much cause for concern. Indeed, with retail price deflation accelerating and households’ purchasing power on the rise, the weakness of sales volumes at the beginning of the year is likely to be a temporary blip. 2015 still looks set to be a buoyant year for the consumer.
For the 4th successive year Oxford Economics has collaborated with the Institute for Fiscal Studies on the Green Budget. This long-running and highly respected publication provides an … more
Surveying local government leaders worldwide, Oxford Economics, CIMA, and AICPA looked at the evolving role finance is playing in helping government leaders address key performance … more
This study, commissioned by the BVRLA, the trade body for the vehicle rental and leasing sector, investigates the economic contribution the full-service leasing and rental sector … more
The Wall Street Journal: "Hard as it is to believe, the eurozone is looking up. Investors who have written off the single-currency bloc as a growth-free zone should think again." … more
The International Business Times: "'Our favored business-investment gauge points to moderate activity in early 2015 as a stronger dollar and sluggish global growth restrain activity. … more
"(Bloomberg) -- New-home sales in January held close to the fastest pace in more than six years, consistent with slow and steady progress that’s been the hallmark of the U.S. housing … more