7th February 2020
ECB President says Eurozone showing signs of stabilisation. Economic growth in the Eurozone is in line with the European Central Bank’s (ECB) expectations, according to the Bank’s President Christine Lagarde. Acknowledging risk factors that could dampen expansion, like the coronavirus, she affirmed that the currency bloc’s economic growth is showing tentative signs of stabilisation. With regards to inflation, Ms Lagarde described consumer prices as being subdued but still within ECB projections. More importantly, she mentioned that the current environment of low rates by central banks all over the world gave the ECB very little room to manoeuvre and hinted that the central bank has very few options left to stimulate the economy if it slows down.
Surprise drop in German factory orders shows worst is not over. Germany's factory orders fell unexpectedly at the end of 2019, reflecting the weakness in foreign demand, data from the country’s statistics office revealed on Thursday. Factory orders plummeted 2.1 percent in December compared with the previous month and were down by 8.7 percent compared to the same month in the prior year. Factory orders were pushed down by falling factory orders in the rest of the Eurozone and a fall in demand for investment goods. The significant decline in orders suggests that industrial production is likely to decline again in the first quarter of this year especially as the outbreak of the coronavirus in China will probably prove as an additional burden. Factory orders are an important measure because they indicate future output.
US manufacturing index unexpectedly indicates expansion in January. US manufacturing activity unexpectedly expanded for the first time in several months in January, according to a report by the Institute for Supply Management (ISM) published on Monday. ISM’s index of national factory activity rose to a reading of 50.9 last month, the highest level since July, from an upwardly-revised 47.8 in December. Economists had expected the index to show a more modest gain to a reading of 48.5, which would have still indicated a contraction in the sector. The improvement in the manufacturing data probably reflects easing trade tensions between the US and China after the two countries signed a so-called phase one trade deal last month. The improvement in this closely-watched national survey follows a series of mixed readings on the manufacturing sector at the regional level.
India’s central bank keeps key interest rate on hold. India's central bank kept its key interest rate on hold for the second consecutive meeting on Thursday. At the same time, it decided to continue its accommodative stance as long as necessary to revive growth and to bring inflation to target. At its bi-monthly monetary policy meeting, the Reserve Bank of India (RBI) decided to hold the policy repo rate unchanged at 5.15 percent. The RBI recognises that there is policy space available for future action, the bank said. Policymakers observed that the outlook for inflation is highly uncertain at this juncture. At the same time, economic activity remains subdued.
Australia’s central bank cuts growth forecast. Australia’s central bank has slashed its economic growth forecast for the country in the near term to reflect the drag from bushfires and drought at home and the coronavirus in China. However the bank expects a quick recovery later in the year. In its quarterly Statement on Monetary Policy, published on Friday, the Reserve Bank of Australia projected growth to remain at two percent in the year to June 2020 compared to the previous forecast of 2.5 percent. The growth rate is expected to improve to three percent in the year to June 2021.