Downward Revision For Euro Area Outlook

Daily Analysis - 05/02/2016

European Commission Cuts Inflation and Growth Forecasts for 2016

The latest projections released by the European Commission forecasts that annual consumer price inflation will rise to half of what was initially announced for the fiscal year since their last estimates. The value is expected to rise by 0.50% amid ongoing concerns about the pace of deceleration in global trade and weak commodity prices.

EU Inflation and Growth Forecasts Slashed

The European Commission has opted once again to cut its own 2016 forecasts for inflation and growth in the Euro Area during its winter economic meeting. Brussels announced a revision lower of its inflation forecast to 0.50% for 2016 after anticipating 1.00% in the prior meeting conducted during November. Risks to the economic outlook are mounting as falling oil prices, slowing momentum in emerging and additional possible rate hikes from the United States cloud visibility. The EU Commission also reduced growth estimates for the year to 1.70% from the initial 1.80% while leaving forecasts for 2017 unchanged at 1.90% with inflation anticipated to experience a pick up to 1.70%. ECB President Mario Draghi stated on Thursday, that inflation is being held back by conspiring forces in the global economy while reiterating that policymakers will consider raising rates once inflation nears to 2.00%.

BoE Votes Unanimously

For the first time since July of 2015, Bank of England Monetary Policy Committee unanimously voted for rates to remain unchanged at a record low of 0.50%, matching market expectations. Policymaker Ian McCafferty, who has opposed flat rates for the last few meetings, has reversed course after dissenting for months, rejoining dovish policymakers who have moved to cut growth and inflation forecasts for the year ahead. Inflation is expected to reach 1.20% in the first quarter of 2017, down from the initial forecast of 1.50% with the measure unexpected to reach the Central Bank’s target of 2.00% until the first quarter of 2018. The GDP growth outlook was also revised lower, anticipated to expand only 2.20% for the fiscal year, down from 2.50%. Governor Mark Carney defended the MPC’s decision as the country’s economy is encircled by a slowing the global economy, stagnant inflation, Brexit risks and a weakness in wage growth.

US Jobless Claims Rise

Unemployment claims in the United States increased to 285,000 for the week ending January 30^th according to the latest report from Department of Labor. Individuals filing for unemployment benefits rose from the previous week’s revised 277,000 while also missing estimates of 280,000. The Labor Department stated that claims are still below the 300,000 level consistent with a healthy labor for the 48th consecutive week while also highlighting that unemployment claims in Oklahoma were estimated due to a glitch in their computer system. The 4-week average also climbed, rising to 284,750 compared to the previous week’s revised 282,750. The labor market appears to be losing momentum amid more tepid growth, reflected recently by early estimates of fourth quarter GDP that underlined an ongoing deceleration in economic activity. The US dollar continued to weaken against peers, pushing gold to new multi-month highs.

Australian Retail Sales Fall Flat

Retail Sales for the month of December stayed flat at 0.00% according to the Australian Bureau of Statistics. Although expected to show positive momentum due to the holidays, results fell well short of expectations of 0.50% while also printing below the prior month’s 0.40% reading. The declines were attributed mainly to the -1.00% decline in household goods and echoed with retailing falling by -0.90%. Cafe, restaurant and food services spending remained unchanged during the period. The results from the final quarter of the year 2015 showed no change in comparison to the prior period, matching the 0.60% recorded earlier. With Australia’s growth recently defined by the services and consumption economy instead of traditional mining investment, weakness in household spending will affect growth and may force the hand of the Reserve Bank of Australia to ease monetary policy even further.