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226 matches for " downside risks":
The recovery in private consumption in Japan is showing clear signs of stalling.
Mexico's final estimate of third quarter GDP, released yesterday, confirmed that the economy is still struggling in the face of domestic and external headwinds.
Some normality has returned in India, more than three weeks from the end of the nationwide lockdown and the start of "Unlock 1.0" on June 1.
Data released on Monday confirmed that the Colombian economy slowed in August, following a solid rebound since mid Q2.
President Trump tweeted yesterday that he wants to re-introduce tariffs on steel and aluminium imports from Brazil and Argentina, after accusing these economies of intentionally devaluing their currencies, hurting the competitiveness of U.S. farmers.
The changing face of India's post-lockdown economic recovery indicates that the initial bounce since the June reopening could soon stall.
Brazil's consumer resilience in Q3 continued to November, but retail sales undershot market expectations, suggesting that the sector is not yet accelerating and that downside risks remain.
The key story in Brazil this year remains one of gradual recovery, but downside risks have increased sharply, due mainly to challenging external conditions.
Brazil's industrial sector is still suffering, but the pain is easing as the economy gradually reopens. That said, full recovery is a long way off, and the pandemic is still far from over, adding downside risks to the recent upbeat picture.
We have spent the past few weeks shifting our story on the EZ economy from one focused on slowing growth and downside risks to a more balanced outlook. It seems that markets are starting to agree with us.
The November IFO report suggests that the headline indices are on track for a tepid recovery in Q4 as a whole, but the central message is still one of downside risks to growth
Mexico's industrial recession deepened in April, though some leading indicators suggest that the worst is over as the economy gradually reopens. But downside risks have increased dramatically in recent weeks, as the pandemic seems to be gathering renewed strength.
Consumer sentiment data yesterday from the major economies were mixed, signalling that support to Eurozone GDP growth from surging German household consumption is waning. The key "business outlook" index--which correlates best with spending--plunged to a 30-month low in October, while the advance GfK sentiment index dipped to 9.4 in November from 9.6 in October. We see little signs in retail sales data of slowing momentum, and also think consumers' spending rebounded in Q3. But our first chart shows that the fall in the GfK index implies clear downside risks in coming quarters.
Mexican policymakers likely will stick to the script tomorrow and vote by a majority to cut the main rate by 50bp to 5.00%, which would be its lowest level since late 2016.
Friday's PMIs were supposed to provide the first reliable piece of evidence of the coronavirus on euro area businesses, but they didn't. Instead, they left economists dazed, confused and scrambling for a suitable narrative.
Chile's upbeat economic activity reports for August are consistent with economic recovery in the second half of the year, after an ugly first half.
The Brazilian economy fell into recession over the first half of the year due to the severity of the Covid shock on domestic demand.
While we were out, new Covid-19 cases continued to increase in Brazil and Colombia. The latest uptick in Mexico's cases seems to be peaking, though the data are not reliable, due to the country's low test activity.
Today's ECB meeting will mainly be a victory lap for Mr. Draghi--it is the president's last meeting before Ms. Lagarde takes over--rather than the scene of any major new policy decisions.
Friday's data deluge delivered uplifting, if backward- looking, news in the EZ economy. Eurostat's advance report showed that GDP jumped by 12.7% quarter-on- quarter in Q3, partially reversing the cumulative 15.5% collapse during lockdown in the first half of the year.
Data on Friday showed that German producer price inflation is now in free-fall.
Argentina's economic recovery continues, but it will take some time to see output returning to pre-Covid levels, and note that the economy was suffering even before the pandemic.
The unilateral decision of Treasury Secretary Mnuchin to allow a slew of Fed emergency lending programs to close to new borrowers on December 31, despite Fed objections, increases the chance that the FOMC will step-up its asset purchases.
Data on Friday showed that the downward trend in Brazil's unemployment continued into this year. The unadjusted unemployment rate fell to 11.2% in January, slightly below the consensus, and down from 12.0% in January last year.
Data released on Friday confirmed that Colombian activity lost momentum in Q4, following an impressive performance in late Q2 and Q3. Retail sales rose 4.4% in November, down from 7.4% in October and 8.3% in Q3.
The BoJ kept its main policy settings unchanged yesterday, in another 7-to-2 split.
If the only manufacturing survey you track is the Philadelphia Fed report, you could be forgiven for thinking that the sector is booming.
Economic activity in Chile in the first half of the year is now a write-off, due to Covid-19. The country is in a deep recession, and the impact of lockdowns on labour markets and businesses will cause long-lasting economic damage, which will hold back the recovery.
Today brings only the May existing home sales report, previewed below, so we have an opportunity to look over the latest near-real-time data on economic activity. The picture is mixed.
China's loan prime rates were unchanged for a second straight month in June, as expected.
Our forecast for LatAm envisions a gradual pickup in growth, following a terrible first half.
Data released this week confirmed that Q3 real GDP growth in the Andes rebounded sharply, on a sequential basis, as the region's economies gradually reopened.
High interest rates and inflation, coupled with increasing uncertainty, put Mexican consumption under strain last year.
Chile's Q3 GDP report, released yesterday, confirmed that the economy gathered speed in the third quarter, but this is now in the rearview mirror.
The market-implied probability that the MPC will cut Bank Rate at its meeting on January 30 jumped to 63%, from 44%, following the release of December's consumer prices report.
The BoJ is likely to be thankful next week for a relatively benign environment in which to conduct its monetary policy meeting.
Evidence of accelerating economic activity in Colombia continues to mount, in stark contrast with its regional peers and DM economies.
Monday's economic data in Colombia provided further evidence of a gradual rebound in manufacturing output and retail sales as the economy slowly reopened.
The consensus forecast for a 0.6% month-to month rise in retail sales volumes in December--data released today--is far too timid.
Data on air quality in China provide some useful insights into the economic disruptions--or lack thereof--caused by the outbreak of the coronavirus from Wuhan and the government's aggressive containment measures.
Data released yesterday from Brazil support our view that the economic recovery continues, but progress has been slow.
The two biggest economies in the region have taken divergent paths in recent months, with the economic recovery strengthening in Brazil, but slowing sharply in Mexico.
China's trade surplus jumped to a six-month high of $46.8B in December, from $37.6B in November, on the back of a strong increase in exports.
Economic news last week in Mexico was net positive, as industrial production rose by a solid 6.9% month-to-month, following a 17.9% rebound in June, but the bigger picture is less encouraging.
Inflation in the Andean economies ended 2019 well within central banks' objectives, despite many domestic and external challenges.
Brazil's recession carried over into the middle of Q2, but with diminishing intensity in some economic sectors.
Mexican policymakers stuck to the script yesterday and voted unanimously to cut the main rate by 50bp to 5.50%, its lowest level in more than three years.
The EZ trade surplus in goods all but evaporated during lockdown.
The global coronavirus pandemic is hitting the LatAm economy at a particularly vulnerable time, following last year's stuttering economic recovery, temporary shocks in key economies and the effect of the global trade war.
Yesterday's German ZEW investor sentiment survey provided the first clear evidence of the coronavirus in the EZ survey data.
Colombia's GDP report, released last week, confirmed that it was the fastest growing economy in LatAm and everything suggests that it likely will lead the ranking again this year.
Policymakers in Brazil and Chile took another big step this week in assuring markets that they won't hesitate to act in the fight against the virus.
Japan's economy contracted by 0.9% quarter-on- quarter in Q1, following a downwardly-revised 1.9% plunge in the previous quarter.
Japan's economic recovery got back on track this month--just--according to yesterday's flash PMI numbers.
The Eurozone economy all but stalled at the start of Q4.
Recent economic activity, labour market and inflation data all have surprised Brazilian policymakers' expectations, to the upside.
Most of the Andean economies have been hit by the turmoil roiling the global economy in the past few quarters. But modest recovery in commodity prices in Q3, and relatively solid domestic fundamentals helped them to avoid a protracted slowdown in Q2 and most of Q3.
Data released on Friday confirmed an appalling end to the first quarter for the Brazilian and Colombian economies. In Brazil, the March IBC-Br, a monthly proxy for GDP, plunged 5.9% month-to-month, close to expectations.
Peru's political crisis has deteriorated the country's economic outlook, just as it was emerging gradually from the Corona shock.
Argentinians are heading to the polls on Sunday October 27 and will likely turn their backs on the current president, Mauricio Macri.
Our first impression of the proposed Brexit deal between the EU and the U.K. is that it is sufficiently opaque for both sides to claim that they have stuck to their guns, even if in reality, they have both made concessions.
Evidence of weakening momentum in the economic recovery in Colombia was seen last week, alongside its regional peers and some DM economies. Low inflation, low interest rates, and the ongoing boost from a decent fiscal stimulus, all have supported the upturn since mid-Q2.
Mexican policymakers yesterday voted unanimously to cut the policy rate by 50bp to 5.00%, the lowest level since late 2016.
Data released this week in Brazil underscored that the Covid-related shock on the industrial sector is finally easing, as the economy gradually reopens.
Recent hard data have confirmed the severe shock from Corona to the Chilean economy in Q2.
Brazil's December industrial production report, released yesterday, confirmed that the recovery was stuttering at the end of last year.
The recent March economic activity reports for Chile have been terrible, showing the first signs of the Covid-19 shock, and worse is to come.
Economic conditions are deteriorating rapidly in Chile, despite the relatively decent Imacec reading for Q3.
Economic conditions are improving rapidly in Chile, in line with the relatively strong IMACEC reading for Q3 and upbeat leading indicators. This supports our case for interest rates on hold for the foreseeable future.
The near-term performance for EZ manufacturing will be a tug-of-war between positive technical factors, and a still-poor fundamental outlook.
Yesterday's first estimate of full-year 2019 GDP in Mexico confirmed that growth was extremely poor, due to domestic and external shocks.
Data yesterday showed that German inflation roared higher at the start of the year, but the devil is in the detail.
The release of pent-up Japanese consumer demand in June was emphatic, with retail sales values jumping by 13.1% month-on-month.
Data released in recent days confirmed the intensity of the Covid-related shock to the Chilean economy in Q2.
Colombia's central bank has found a relatively sweet spot.
Brazil's Q3 hard data have confirmed that the economy is recovering from the Corona shock, as economic activity resumes. But some indicators are losing momentum, and the labour market is still struggling, suggesting a long and bumpy road to full recovery.
Brazil's industrial sector is on the mend, but some of the key sub-sectors are struggling.
It is becoming increasingly safe to say that any bounce in private consumption following the end of Japan's state of emergency will be muted and difficult to sustain.
Yesterday's manufacturing data in Germany followed the lead from Monday's relatively underwhelming new orders report; see here.
CPI data in Colombia released on Saturday confirmed that inflation is well under control, due to plunging domestic demand on the back of Covid, and despite the lagged effect of the COP depreciation earlier this year.
Data released on Friday showed that November inflation was in line with, or below, expectations in Brazil, Colombia and Chile.
The coronavirus outbreak has pushed inflation lower in the Andean economies as the shock drives them into the deepest recession on record.
Colombia was one of the fastest growing economies in LatAm in 2018, and prospects for this year have improved significantly following June's presidential election, with the market-friendly candidate, Iván Duque, winning.
India's services PMI for June underscores the half-hearted nature of Unlock 1.0, with the daily number of new cases of Covid-19 still rocketing.
Recently released data for Q3 in Brazil have surprised to the upside, but the outlook is darkening for late Q4 and early next year.
The economic calendar in Mexico was relatively quiet over Christmas, and broadly conformed to our expectations of poor economic activity in Q4.
The Brazilian Central Bank's policy board-- COPOM--met expectations on Wednesday, voting unanimously to cut the Selic rate by 25bp to 2.00%.
The MPC struck a less dovish tone than markets had anticipated yesterday.
Yesterday's economic reports in the Eurozone were solid across the board.
Before the Covid pandemic struck, the mix-adjusted measure of wages and salaries in the employment costs index was trending up by about 3.0% year-over-year.
Yesterday's economic reports in the euro area were mixed.
The coronavirus pandemic looks set to spread rapidly throughout LatAm.
Friday's PMI data were a mixed bag.
Data released yesterday in Brazil support our base case that the IPCA inflation rate will remain relatively stable over the coming months, hovering around 2%.
Japan's retail sales data--due out on Thursday-- have been badly affected by the October tax hike.
Retail sales in Mexico fell in Q4, but we think households' spending will continue to contribute to GDP growth in the first quarter, at the margin.
The dovish members of Banxico's board garnered further support on Friday for prolonging the current easing monetary cycle over coming meetings.
It looks as though business and consumer confidence in Korea has brushed off the economic threat of the second Covid-19 wave.
Inflation in the biggest economies in the region remains close to cyclical lows, allowing central banks to ease even further over the next few months.
If we analyse the Covid-19 shock as a normal downturn, the clock has now been reset on the business cycle, which in turn implies that it is a great time to be invested in EZ equities.
Mexican policymakers yesterday voted unanimously to cut the policy rate by 25bp to 4.25%, slowing the pace from 50bp at the previous five meetings.
Friday's sole economic report provided further clarity on the impact on Germany's inflation data from the Value-Added-Tax cut in July.
Outright CPI deflation likely already has taken hold in Japan. Friday's data showed inflation falling to zero percent in September, from 0.2% in the previous month.
Yesterday's IFO data reversed the good vibes sent by last week's upbeat German PMIs.
The downturn in Japan's all-industry activity index slowed in May to -3.5% month-on-month, from April's significantly revised 7.6% plunge.
The official PMIs suggest that the January survey data have escaped the worst of the hit from the virus.
Brazil's February industrial production numbers, labour market data, and sentiment indicators are gradually providing clarity on the underlying pace of activity growth, pointing to some red flags.
The end of Korea's first Covid-19 wave, coupled with the government's economic support measures, has been a boon for the retail industry.
Chile's near-term economic outlook is still negative after a sharp resurgence of coronavirus cases.
Mexico's first estimate of third quarter GDP, released last week, confirmed that the economy is still struggling in the face of Covid-related domestic and external headwinds, despite recording the biggest-ever quarterly increase.
All eyes this week will be on the EZ September inflation data with investors looking for signs that the ECB is being drawn back into easing, or alternatively, that its recent more confident tone is being vindicated.
Retail sales values in Japan plunged by 14.4% month-on-month in October, reversing September's 7.2% spike twice over.
Brazil's external accounts remain relatively solid, making it easier for the country to withstand any potential external or domestic threat.
Our ECB-story since Ms. Lagarde took the helm as president has been that the central bank will do as little as possible through 2020, at least in terms of shifting its major policy tools.
The stock market did not like the renewed closure of bars in Texas and Florida, announced Friday morning.
We learned yesterday that the patchy but widespread reopening of the economy is triggering the first wavelet of rehiring.
Leading economic indicators in the Eurozone continue to send contradictory signals. Most of the headline surveys indicate that a further slowdown, and perhaps even recession, are imminent, while the money supply data suggest that GDP growth is about to re-accelerate.
New Covid-19 cases in Mexico have continued to fall steadily over this month, with deaths peaking two weeks ago, as shown in our first chart.
Today's second Q3 GDP estimate in the Eurozone has been rendered even more meaningless after this week's news that an effective vaccine could now be a reality as early as the beginning of 2021,
Recent activity data in Mexico have been soft and leading indicators still point to challenging near-term prospects, due mainly to relatively high domestic political risk, stifling interest rates and difficult external conditions.
Headline inflation in Mexico remained sticky in October, and even breached the ceiling of Banxico's target range.
Mexico's latest forward-looking indicators are showing tentative signs of stabilisation in the wake of recent evidence that growth slowed quicker than markets have been expecting.
The MPC's pause for breath last week disappointed a majority of investors, who thought that it would at least tweak aspects of the support programmes put in place in March.
The MPC likely will steer clear of providing strong signals on the outlook for monetary policy at next week's meeting.
Yesterday's economic reports in the Eurozone were ugly.
In this Monitor we'll let the data be, and try to make some sense of the recent market volatility from a Eurozone perspective, with an eye to the implications for the economy and policymakers' actions.
The government's decision to shelve plans to reopen primary schools fully later this month will ensure that GDP remains greatly below its precoronavirus level throughout the summer months.
Friday's manufacturing and trade data added to the evidence of a solid rebound in the EZ economy at the end of Q2, as lockdowns were lifted.
The Brazilian Central Bank's policy board-- COPOM--voted unanimously on Wednesday to cut the Selic rate by 50bp to 5.00%, as expected.
Recent inflation and activity data in Mexico were dovish.
Friday's industrial production data in the core EZ economies, for December, were startlingly poor. In Germany, industrial production plunged by 3.5% month-to-month, comfortably reversing the revised 1.2% rise in November.
Survey data have been signalling a resilient Brazilian economy in the last few months, despite the broader challenges facing LatAm and the global economy in 2019.
The Fed paved the way with a 50bp emergency rate cut on March 3, with more to come.
The apparent thaw in the U.S.-China trade dispute is great news for LatAm, particularly for the Andean economies, which are highly dependent on commodity prices and the health of the world's two largest economies
The Andean countries were quick to implement significant measures in response to the initial stage of the pandemic, adopting a broad range of economic and social policies to ease the effects.
Hard data for Brazil and Mexico, released last week, support the case for further interest rate cuts.
It was no surprise that Banxico cut its policy rate by 25bp to 7.00% yesterday, following similar moves in August, September, November and December.
Japan's GDP likely dropped by a huge 0.9% quarter-on-quarter in Q4, after the 0.5% increase in Q3, with risks skewed firmly to the downside.
The year-over-year collapse of industrial production in India eased substantially in May, to -35%, from -58% in April, close to our -32% forecast.
Inflation in Brazil Ended 2019 Above the BCB's Target; 2020 will be Fine
Mexican policymakers voted yesterday by four to one to keep the main rate at 4.25%, surprising the consensus forecast for a 25bp rate cut.
Core machine orders in Japan surprised to the upside in August, when the country's second wave of Covid-19 peaked.
Mexico's industrial sector did relatively well in Q3, due mainly to the resilience of the manufacturing sector, and the rebound in construction and oil output, following a long period of sluggishness.
Chile's market volatility and high political risk continue, despite government efforts to ease the crisis.
The Brazilian central bank cut its benchmark Selic interest rate by 50bp to 4.50% on Wednesday night.
The 0.1% dip in the core CPI in March was the first outright decline in three years, but we expect another-- and bigger--decline in today's April numbers.
Thursday's CPI report in Mexico showed that inflation is edging lower. We are confident that it will continue to fall consistently during Q1, thanks chiefly to the subpar economic recovery, low inertia and the effect of the recent MXN rebound.
Friday's June inflation data in Brazil confirmed that the ripples from the worst of the Covid shock were still being felt at the end of the quarter.
The MPC surprised nobody yesterday by voting unanimously to keep Bank Rate at 0.75% and to maintain the stocks of gilt and corporate bond purchases at £435B and £10B, respectively.
We see downside risk to the housing starts numbers for April, due today. Our core view on housing market activity, both sales and construction activity, is that the next few months, through the summer, will be broadly flat-to-down.
Incoming activity data from Colombia over the past quarter have been surprisingly strong, despite many domestic and external threats.
Over the last few months we have started to see hard evidence of Brazil's deceleration, and, as we have argued in previous Monitors, the slowdown is now set to become more visible. Over the coming weeks, markets will focus on whether Brazil is already in recession, its likely severity, and how the country will get out of this mess.
Recent Mexican data have been upbeat, supporting our view that a gradual recovery is underway. In the key auto sector, for example, production increased 11.4% year-over-year in November, while exports rose 5.8% year-over-year in October.
The underlying trend in payroll growth probably has not changed significantly from the 228K average monthly gains recorded last year. But the average hides wide variations, some triggered by seasonal adjustment problems and others by one-time weather effects or unavoidable and random sampling error. January's below-trend 151K increase was likely a victim of seasonal problems, because payroll gains in recent years have tended to be soft at the start of the year after outsized fourth quarter increases.
Prime Minister Theresa May's announcement that Parliament will vote today on holding a general election on June 8 shocked markets and even her own party's MPs. Betting markets were pricing in only a 20% chance of a 2017 election before yesterday's news.
Economic growth in Brazil is not likely to improve significantly this year. Our pessimism was underscored by the November industrial production data last week, showing a contraction of 0.7%, and pushing output to its lowest level since June.
Japan's trade balance deteriorated sharply in May, flipping to a ¥967B deficit from the modest ¥57B surplus in April.
Consumption remains an important source of economic growth in LatAm.
Sterling's depreciation has done little to remedy the U.K.'s dependence on external finance.
LatAm assets and currencies enjoyed a good start to the week, following the agreement between the U.S. and China to pause the trade war.
We have no reason to think the underlying trend in payroll growth has changed--the 235K average for the past three months is as good a guide as any--but the balance of risks points clearly to a rather lower print for August. Two specific factors, neither of which have any bearing on the trend, are likely to have a significant influence on the numbers, and both will work to push the number below the 217K consensus.
Two key reports today, on January consumer prices and durable goods orders, have the power to move markets substantially. We think both will undershoot market expectations, though we would be deeply reluctant to read too much into either report; both are distorted by temporary factors.
Yesterday's IFO survey sent a clear signal that the German economy's engine is stuttering. The business climate index fell to a 14-month low of 105.7 in February from 107.3 in January, and the expectations index slumped to 98.8 from 102.3. The weakness was driven by weaker sentiment in manufacturing, which plunged at its fastest rate since November 2008.
The Greek economy escaped recession in the second half of last year. Real GDP rose a cumulative 1.2% in Q2 and Q3, following a 0.6% fall in Q1. And industrial production and retail sales data suggest that the advance GDP report released later this month will show that the momentum was sustained in Q4. Headline survey data, however, indicate that downside risks to the economy remain.
Yesterday's ECB meeting provided no immediate relief to nervous investors. The central bank kept its main interest rates unchanged, and maintained the pace of QE purchases at €60B per month. Mr. Draghi compensated for the lack of action, however, by hinting heavily at further easing at its next meeting. The president emphasized that the ECB's policies will be "reviewed and reconsidered" in light of the March update to the staff projections. Mr. Draghi also admitted that inflation has been "weaker than expected" since the last meeting, and that downside risks have increased further. The central bank does not pre-commit, but we think it is a good bet that the ECB will do more in March.
Central banks in Mexico and Colombia kept their main interest rates on hold last week, due to recent volatility in the currency markets. Policymakers acknowledged the downside risks to growth, particularly from low commodity prices, but inflation fears, triggered by currency weakness, mean they will not be able to ease if growth slows.
None of today's major economic reports are likely to suggest that the economy is struggling, but that does not mean you can stop worrying about near-term downside risks.
Data released last week confirm that the Argentinian economy was resilient at the start of the year, but downside risks to growth have increased.
EZ households' demand for new cars was off to a strong start in 2017. Car registrations in the euro area jumped 10.9% year-over-year in January, accelerating from a 2.1% rise in December. We have to discount the headline level of sales by about a fifth to account for dealers' own registrations. Even with this provision, though, the January report was solid. Growth rebounded in France and Germany, and a 27.1% surge in Dutch car registrations also lifted the headline. We think car registrations will rise about 1.5% quarter-onquarter in Q1, rebounding from a weak Q4. But this does not change the story of downside risks to private spending.
The ECB's communication to markets has been clear this year. In Q1, the central bank changed its stance on the economy towards an emphasis on "downside risks to the outlook".
Mr. Draghi used his introductory statement at the ECON--EU Economic and Monetary Affairs Committee-- hearing last week to assure investors that the central bank is vigilant to downside risks. The president noted the governing council "would not hesitate to act" if it deems growth and inflation to be undershooting expectations. Market volatility has increased the ECB's worries, but economic data continue to tell a story of a firm business cycle upturn.
Eurozone September CPI data this week will show that inflation pressures remain weak, appearing to support the ECB's focus on downside risks. We think Eurozone inflation--data released Wednesday-- rose slightly to 0.2% year-over-year in September from 0.1% in August, as core inflation edged higher, offsetting weak energy prices. Looking ahead, structural inflation pressures will keep inflation well below the central bank's 2% target for a considerable period.
Short of saying "We're going to hike rates in two weeks' time", Dr. Yellen's view of the immediate economic and policy outlook, set out in her speech yesterday, could hardly have been clearer. Yes, she threw in the usual caveats: "...we take account of both the upside and downside risks around our projections when judging the appropriate stance of monetary policy", and saying the FOMC will have to evaluate the data due ahead of this month's meeting, but her underlying message was straightforward.
In recent Monitors, we have highlighted the upturn in Q4 survey data pointing to a strong end of the year for the EZ economy. This story has not changed, but yesterday's money supply data tell a story of downside risks.
After a very light week for economic data so far, everything changes today, with an array of reports on both activity and inflation. We expect headline weakness across the board, with downside risks to consensus for the December retail sales and industrial production numbers, and the January Empire State survey and Michigan consumer sentiment. The damage will b e done by a combination of falling oil prices, very warm weather, relative to seasonal norms, and the stock market.
The Colombian economy was relatively resilient at the end of last year, but economic reports released during the last few weeks indicate that growth is still fragile, and that downside risks have increased. Real GDP rose 1.0% quarter-on-quarter in Q4, pushing the year-over-year rate up to 1.6% from 1.2% in Q3.
Recent data have confirmed that Colombian economic activity is still fragile, and that downside risks increased in Q1 as oil prices hav e slipped. The ISE economic activity index rose just 1.0% year-over-year in January, down from a 1.6% average gain in Q4.
Recent upbeat economic reports have mitigated the downside risks we had been flagging to our growth forecast for Mexico for the current quarter.
We often hear that the large gap between the slowing rising path for interest rates anticipated by the MPC and the flat profile expected by markets is justified because markets have to price-in all of the downside risks to the economic outlook posed by Brexit.
Collapsing oil prices continue to weigh on inflation pressures in Eurozone. Inflation was unchanged at a minimal 0.2% year-over-year in August, largely due to an accelerated fall in energy prices, which plunged 7.1%, down from a 5.6% drop in July. Base effects will offer support for year-over-year changes in energy prices starting in Q4, but our fir st chart show downside risks loom in the short run.
Yesterday's German manufacturing and trade data did little to allay our fears over downside risks to this week's Q4 GDP data. At -1.2% month-to-month in December, industrial production was much weaker than the consensus forecast of a 0.5% increase. Exports also surprised to the downside, falling 1.6% month-to-month. Our GDP model, updated with these data, shows GDP growth fell 0.2%-to-0.3% quarter-on-quarter in Q4, reversing the 0.3% increase in Q3.
Data released on Wednesday confirmed that the Brazilian economy was relatively resilient in Q1. Leading indicators suggest that it will do well in Q2 and Q3, but downside risks are rising.
• U.S. - Downside risks loom for growth in Q3 • EUROZONE - Solid M1 data points to a strengthening EZ recovery • U.K. - No major breakout in sight for Cable • ASIA - India is reopening, but risks remain high • LATAM - Mexico's economy is on the ropes; further rate cuts are coming
Economic Activity Remains Sub-Par... But Downside Risks are Gradually Easing
Serious downside risks to growth are mounting...but the fed can't ignore rising inflation risks
Yesterday's Mexican industrial data painted a downbeat picture of the sector at the end of last year, and highlighted the downside risks facing the economy in the first half of this year. Industrial output fell 0.1% month-to-month and was flat year over-year in December, with weakness in all sectors except manufacturing. Overall, industrial activity expanded by only 0.2% year-over-year in the fourth quarter, the slowest pace since late 2013.
Manufacturing data for the euro area's major economies point to renewed downside risks for GDP growth, despite the likely tailwind to consumption from low oil prices. November industrial production fell 0.1% and 0.3% month-to-month in Germany and France respectively, indicating that the manufacturing sector remains under pressure.
Industrial production data yesterday confirmed downside risks to today's GDP data in the Eurozone. Output fell 0.3% month-to-month in September, pushing the year-over-year rate down to 1.7% from a revised 2.2% in August. Weakness in Germany was the main culprit, amid stronger data in the other major economies. A GDP estimate based on available data for industrial production and retail sales point to a quarterly growth rate of 0.4% quarter-on-quarter, but we think growth was rather lower, just 0.2%, due to a drag from net trade.
Investors in the euro area have mostly been focused on downside risks this year, and the spectre of Turkey spinning out of control has done little to change that.
Mixed comments last week by members of the governing council raised doubts over the ECB's resolve to add further stimulus next month. But the message from senior figures and Mr. Draghi remains that the Central Bank intends to "re-assess" its monetary policy tools in December. Our main reading of last month's meeting is that Mr. Draghi effectively pre-committed to further easing. This raises downside risks in the event of no action, but the President normally doesn't disappoint the market in these instances.
Brazil's April CPI data this week showed that inflation pressures remain weak, supporting the BCB's focus on the downside risks to economic activity. Wednesday's report revealed that the benchmark IPCA inflation index rose 0.1% unadjusted month-to-month in April, marginally below market expectations.
The economy is still under strain...but downside risks are gradually easing
• U.S.- Stimulus talks are going nowhere • EUROZONE - EZ banks remain in a world of pain • U.K.- The recovery slowed, before the second wave • ASIA - Downside risks remain for India's recovery • LATAM - Brazilian retail sales are picking up, but threats remain
In one line: A solid end to the year, but downside risks have increased lately.
In one line: Resilient, but downside risks are emerging .
In one line: Manufacturing remains resilient, but downside risks looms.
In one line: A poor start to the third quarter and downside risks remain.
In one line: A decent rebound, but downside risks remain.
In one line: A decent rebound, but downside risks remain.
In one line: Stubbornly sticky, but downside risks still prevail.
In one line: Manufacturing remains resilient, but downside risks loom.
In one line: A solid rebound, but downside risks remain.
In one line: Much better, but still soft, and downside risks ahead.
A Gradual Economic Recovery Continues...But Downside Risks Prevail
In one line: Acknowledging the growing downside risks, but not changing course.
In one line: Poor and downside risks remain.
In one line: A good start to the second quarter but downside risks remain.
In one line: Robust, but downside risks remain.
Downside risks to our growth forecast for Brazil and Mexico for this year have diminished this week. In Brazil, concerns over the potential impact of the meat scandal on the economy have diminished. Some key global customers, including Hong Kong, have in recent days eased restrictions on imports from Brazil, and other counties have ended their bans.
In one line: Stubbornly sticky, but downside risks still prevail.
The final Eurozone PMIs indicate that the cyclical recovery continued in Q1, but downside risks are rising. The composite index rose marginally to 53.0 in March, from 53.1 in February, below the initial estimate 53.7. Over the quarter as a whole, though, the index fell to 53.2 from 54.1 in Q4, indicating that economic momentum moderated in the first quarter.
The scars from previous economic crises have not healed fully in the Eurozone, and we think the ECB will extend QE today, by six months to Q3 2017. We expect Mr. Draghi to retain his dovish bias in the opening statement, and to repeat the emphasis on downside risks, due to the weak external environment and political fears.
Factory orders in Germany probably jumped in September, following a string of losses in the beginning of Q3. We think new orders rose 1.0% month-to-month, pushing the year-over-year rate slightly lower, to 1.8% from 2.0% in August. A rebound in non- Eurozone export orders likely will be the key driver of the monthly gain, following a 14.8% cumulative plunge in the previous two months. The rise will be concentrated in capital and consumer goods, and should be enough to offset a fall in export orders within the euro area. Our forecast is consistent with new orders falling 2.0% quarter-on-quarter in Q3, partly reversing the 3.0% surge in the second quarter, and raising downside risks for production in Q4.
The ECB left its key interest rates unchanged yesterday, and maintained the pace of QE at €60B a month, but increased the issue limit to 33% from 25%. The updated staff projections revealed a downward adjustment of the central bank's inflation and growth forecasts across all horizons up to 2017. These forecasts were accompanied by a very dovish introductory statement, noting disappointment with the pace of the cyclical recovery, and emphasizing renewed downside risks to the economy and the inflation outlook.
Industrial production data yesterday confirmed downside risks to Q4's GDP data in Brazil. Output fell 0.7% month-to-month in October, the fifth consecutive decline, pushing the year-over-year rate down to -11.2%, from -10.9% in September. This was the biggest drop since April 2009, when output collapsed by 14.2% during the global financial crisis. The October details were even worse than the headline, as all three broad-measures fell sharply.
Markets were left somewhat disappointed yesterday by the G7 statement that central banks and finance ministers stand ready "to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks."
In one line: So-so, but downside risks to the Q2 GDP headline linger.
Brazil's March industrial production report, released on Thursday last week, was weaker than we and the markets were expecting, while the recent deterioration in sentiment surveys highlights the downside risks to the rather fragile economic recovery.
In one line: Not pretty; downside risks remain for industrial production in Q2.
In one line: More downside risks for the Q4 hard data.
Tankan suggests downside risks to our -6% y/y Q2 GDP forecast. Private manufacturers in China continue to play catch-up. Expect a bumpy recovery for Korean exports in Q3. Korean business sentiment is finally recovering.
China's Caixin gauge still to register renewed tariff threat. Japan's Capex growth on borrowed time. Korean exports stumble in May, but Q2 is shaping up to be better than Q1. Korea's PMI for May highlights the still-huge downside risks facing exporters.
Japan's trade balance continues to struggle with oil gains and post-tax hike recovery. Activity index shows downside risks to Q4 GDP.
Tankan poses downside risks to our Q3 GDP forecast for Japan. Chuseok effects flatter Korean exports in September... expect a reversal this month.
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