Speed bump: early signs of landing

“Eurozone leads developed world expansion

 

• Developed world growth was led by the eurozone, where growth hit a near six-year high. Growth meanwhile slowed in the US, UK and Japan, albeit remaining robust in all cases by recent standards to suggest broad-based expansions among the four largest rich-world economies.

 

• Russia continued to lead the emerging market upturn, recording the highest PMI of the BRIC nations for the fourth successive month. Growth accelerated in China, and India returned to expansion for the first time since October, suggesting the economy is recovering from the disruptions of demonetisation.

 

• Brazil remained firmly in decline, though the contraction was the shallowest for almost two years.”

“US surveys point to strong Q1 but hint at business mood cooling

 

• The US PMI surveys suggest the economy is growing at an annualised rate of around 2.5% in Q1. It remains unclear whether a February slowdown merely represents some pay-back after a strong start to the year, or whether it’s the start of a more entrenched slowdown. A clue rests with the business expectations index, which indicates that business optimism has mellowed back to its post-election level, suggesting companies are becoming more cautious with regard to spending.

 

• Companies nevertheless continued to report buoyant domestic demand and continued to take on staff in reasonable numbers, the rate of hiring having slowed only modestly. The February survey is broadly consistent with 175,000 payroll jobs being added, which represents a pace of hiring that will do little to deter the Fed from delaying its next rate hike.”

“UK PMI indicates slowdown in GDP growth to 0.4% in Q1

 

• The Markit/CIPS ‘all-sector’ PMI fell for a second successive month in February, dropping to a five-month low of 53.7 from 55.1 in January. The readings for the first two months of the year so far suggest the economy will grow 0.4% in Q1, markedly lower than the 0.7% expansion seen in Q4 of last year. The slowdown signalled by the February surveys pushes the PMI back towards territory more indicative of additional policy stimulus from the Bank of England than a tightening.

 

• However, inflationary pressures remained the highest for six years as firms struggled with rising costs associated with the weak pound. The steep upturn in costs suggests that consumer price inflation has significantly further to rise from the 1.8% annual rate of increase seen in January.”