Economists raise question over recovery

Paresh Davdra is the Dealing Director of RationalFX, Currency Specialists. Wednesday 04th March 2015 04:26 EST

This was the largest year-on-year fall since consistent records began in 1997. On-line sales in January were also up 12% compared to January 2014.

GDP between October and December grew by a quarterly 0.5 percent. That was the slowest growth rate in a year, although there have been signs the economy started 2015 more strongly.

Economists said the second consecutive quarterly fall in business investment raised questions about the recovery. The 1.4 percent drop in business investment was the biggest since mid-2009. Economists had expected it to rise slightly.

The slowdown in overall growth at the end of last year has not prevented Prime Minister David Cameron from putting the economy front and centre in the campaigning by his Conservative Party ahead of national elections on May 7.Britain's economic growth of 2.6 percent in 2014 as a whole was the fastest in seven years.

A busy week for the Euro, The Purchasing Managers' Index, based on surveys of thousands of companies and seen as a good growth indicator, rose to 53.5, its best since July 2014, from a final reading of 52.6 last month. That beat even the most bullish forecasts and marked the 20th month above the 50 level that separates growth from contraction.

In a positive sign for future activity, the gauge of new orders growth at services firms rose to 53.3 from 51.7. Growth in order backlogs rose to the highest level in nearly four years.

Data out from Germany last week showed that the economy expanded by 0.7% in the three months through to December. Private consumption climbed 0.8 percent, capital investment rose 1.2 percent and exports jumped 1.3 percent. This has been partly attributed to the trickle down effects from a lower oil price and a weak Euro.

According to reports out, Greece will struggle to make repayments to the IMF and ECB this year. Stating they will not have liquidity problems for the public sector but will definitely have problems in making debt repayments to the IMF and ECB in July. These remarks come a day after the Eurogroup of finance ministers agreed to a four month bailout extension for Greece. Greece has to pay an IMF loan of 1.6B Euros that matures in March and 7.5B Euros in maturing bonds held by the ECB in July and August.

German consumer sentiment jumped to its highest level in more than 13 years heading into March as low oil prices benefited households, That was the highest reading since Oct. 2001 and topped the Reuters consensus forecast of 9.5 points.

In other news, German unemployment dropped twice as much as forecast in February after the country returned to its position as Europe’s economic powerhouse. The number of people out of work declined a seasonally adjusted 20,000 to 2.81 million. The adjusted jobless rate remained at 6.5 percent, the lowest level in records going back more than two decades.

Consumer prices from Germany, Italy and Spain signalled an easing of deflation risks in the euro area. In Germany prices fell 0.1 percent, less than the 0.5 percent drop forecast. Italian inflation was 0.1 percent this month better than the minus 0.3 percent rate predicted while Spanish prices fell less than estimated.

In the US The Federal Reserve is preparing to consider interest rate hikes "on a meeting-by-meeting basis,"

The lack of inflation has made some Fed policy makers hesitant to commit to raising rates until they are more certain the United States is not headed down the same path as Europe or Japan, mature industrial economies that are struggling to maintain growth.

The CPI dropped 0.7 percent from December, the largest fall since December 2008. It had slipped 0.3 percent in the prior month. Fed officials, who have long viewed the energy-driven drop in inflation as transitory, could take comfort from a rise in underlying price pressures last month.

Core CPI, which strips out food and energy costs rose 0.2 percent in January after December's 0.1 percent pain. Economists, however, believe the effects of lower energy prices and a strong dollar still have to work their way through to the core CPI, which could mean tame readings ahead.

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