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Central Banks Reduce Expectations

Growth and Inflation Outlooks Revised Lower Amid Growing Risks

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Policymakers from Central Banks of advanced economies slashed projections for GDP growth and consumer price inflation amid renewed risks to the outlook in the form of weak commodity prices and a downturn in global trade while raising the possibility of additional accommodation from monetary policy.

Weekly Review

Aside from the all-important US employment report delivered on Friday, momentum in global financial markets was primarily driven revisions to GDP and inflation forecasts from developed markets including the United Kingdom and Euro Area.  Advanced economies are still reeling from the impact of lower energy prices and weakened growth due to poor external conditions.  The European Commission reduced its own projections for inflation and economic activity amid these risks, with inflation expected at only half the levels forecast in November, dropping to 0.50% expected for 2016.  The Bank of England echoed these revisions, with inflation not expected to hit the 2.00% targeted until 2018 while GDP growth expectations for 2016 were reduced to 2.20% from 2.50% prior.  Manufacturing and services were a focal point in Asia, with Chinese manufacturing experiencing an ongoing contraction while services remained a strong spot in the economy, continuing to expand.  Finally, across the Pacific, a strong reading from ADP earlier in the week contrasted sharply with Friday’s payroll reading showing that job creation in US slowed to 151,000, missing estimates by a wide margin despite the unemployment rate falling to 4.90%.

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The Week Ahead

The coming week will see more limited data releases from across the globe due to an abundance of market holidays.  Asia will be notably quieter in the coming week amid the Chinese New Year festivities which will see local financial markets shuttered for the entire week.  Japanese markets will be closed on Thursday for National Founding Day.  Major announcements will be delivered mainly by Europe and the United States.  Gross domestic product figures for the aggregate Euro Area are due for release on Friday alongside fourth quarter GDP from Germany, with both annualized figures expected to slip modestly lower.  Italian GDP also set for release the same session is projected to grow at an accelerated pace.  The United Kingdom will announce manufacturing and industrial production figures on Wednesday, with the pace of manufacturing contraction expected to accelerate on an annualized basis while industrial production is forecast to have climbed 1.00% over the same period.  Data from the United States is centered on retail sales, with both headline and core retail sales expected to improve modestly.

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