Projected Euroland Growth in 2021 Revised Lower

February 11, 2021

Many Asian markets were closed today due to holiday observances. China, Taiwan, Singapore, Hong Kong, and South Korea were among the countries observing the lunar New Year, and Japan celebrated National Foundation Day.

The lack of Asian market leadership confined the dollar to narrow ranges. Compared to Wednesday closing levels, the dollar is unchanged on a trade-weighted basis and against the euro and loonie and off 0.2% relative to sterling and by 0.1% versus the Swiss franc. The dollar also shows gains of 0.4% against the kiwi, 0.3% relative to the yuan, 0.2% vis-a-vis the yen, and 0.1% against the Australian dollar and Mexican peso.

U.S. equity futures point to a slight gain at the open based on favorable corporate earnings reports. Share prices are up 0.5% so far i n German y, 0.3% in Switzerland, 0.2% in Italy and 0.1% in Great Britain.

Whereas 10-year German bund and British gilt yields settled back two and three basis points today, respectively, the 10-year U.S. treasury yield rose two basis points.

The price of gold is steady, but that of WTI oil has fallen back 0.8%.

Today’s main economic news was the release of the EU Commission’s Winter Forecast, which revises projected GDP in Euroland this year down by 0.4 percentage points to 3.8% because of the forced reintroduction of pandemic containment measures. GDP contracted last quarter and appears likely to do so again in the first quarter of 2021; the forecast presumes that sustained recover commences next quarter. Among the top four economies using the euro, GDP growth is forecast at 3.2% in 2021 and 3.1% in 2022 for Germany, at 5.5% and then 4.4% for France, at 3.4% and then 3.5% for Italy, and at 5.6% in 2021 and then 5.3% in 2022 for Spain. After averaging just 0.3% in 2020, projected CPI inflation of 1.4% in 2021 followed by 1.3% in 2022 stays well below target.

In other economic news today, new U.S. jobless insurance claims of 793k last week surpassed expectations, breaking a string of better-than-forecast weekly results. Moreover, new jobless insurance claims in the final week of January were revised upward by 33k to 812k. President Biden so far is rejecting Republican demand for a much smaller-than-$1.9 trillion pandemic relief package. Recent soft data are helping Biden make his case.

German wholesale prices catapulted 2.1% on month in January, most in almost 3 decades and reflecting higher value added tax and energy costs. On-year WPI inflation was zero percent, an 11-month high, versus -1.2% in December and -2.2% as recently as August. Dutch consumer price inflation accelerated 0.6 percentage points to a 6-month high of 1.6% in January. Core CPI inflation in that country of 2.0% also represents a 6-month peak.

Malaysian GDP contracted 0.3% on quarter and 3.4% on year in the final quarter of 2020. That was the third negative quarterly change of a calendar year that on average saw real GDP shrink by the most (5.6%) in 22 years. By contrast, GDP had growth 4.3% in 2019. Malaysia also reported current account surpluses of MYR 18.965 billion in the fourth quarter and MYR 62.1 billion for 2020.

South African factory output advanced 1.8% between December 2019 and December 2020, the largest 12-month increase in 20 months. In fact, this was the first on-year rise since June 2019.

Greek unemployment slipped to a 7-month low of 16.2% in November.

In other news that could affect investor sentiment, prosecutors from the House of Representatives will wind up their case of impeachment in the U.S. senate trial of former President Trump today. Republican members of the upper chamber appear to have made up their minds even before the trial began, and so an acquittal seems very probable when all is said and done.

Covid data for Thursday were very similar to Wednesday’s figures. Globally there were just under 350k new cases and about 13.8 deaths, The U.S. case number again hovered just below 100k, and deaths continue to run about 3.5k per day.

U.S. President Biden and Chinese President Xi had a phone conversation on the occasion of the Chinese Lunar New Year.

In central banking news, the National Bank of Serbia kept its policy interest rate unchanged at 1.0% after the second review of monetary policy this year. The rate had been cut by 125 basis points last year in four moves: a 50-basis point reduction in March followed by 25-bp cuts in April, June and December. According to a released statement, “the focus of economic policy makers will stay on supporting a swift recovery of our economy, preserving production capacities, employment, further growth of the export sector, and a favorable investment environment.” Inflation is projected to hover in the lower half of the target range going forward.

The Philippine central bank also reviewed monetary policy and concluded with no change in stance. The key overnight borrowing rate has been at a record low of 2.0% since the last of five cuts in 2020 that occurred in November. The rate had been at 4.0% at the start of 2020. Despite a 2-year 4.2% high of CPI inflation touched in January, officials confidently project a return to the target range, according to a released statement today. “Looking ahead, the Bangko Sentral ng Pilipinas remains firm in its intent to take appropriate measures to ensure that the monetary policy stance continues to support the recovery of the economy, consistent with its price and financial stability mandate.” Real GDP plunged 9.5% on average in 2020 versus a 5.9% increase in 2019, and such remained 8.3% below its year-earlier level in 4Q.

Central bank policies are also being reviewed today in Mexico and Peru.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: , , ,


Comments are closed.