Economy on course for a healthy expansion

Paresh Davdra is the Dealing Director of RationalFX, Currency Specialists. Tuesday 07th April 2015 16:58 EDT

Inflation rebounded in Germany last month. Annual inflation was up 0.1% in March, up from minus 0.1% in February and minus 0.5% in January. However, some economists have warned it could fall back into negative territory with energy prices expected to stay low throughout this year. The Eurozone saw growth in manufacturing production accelerate to a ten-month high with Eurozone Manufacturing PMI coming in at 52.2 for March, this figure was higher than the initial 51.90 expected. The performance of the sector strengthened particularly in Germany which saw a PMI of 52.8 increasing from 51.1.
The improvement in these indexes has led to faster growth which is driving job creation higher. As the manufacturing sector dominates a large part of total GDP, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the Euro Zone. This was evident as companies also raised employment at their quickest pace for over three-and-a-half years. Producers are benefitting from the weaker euro as expected, which has had the twin effect of boosting competitiveness in export markets as well as making competing imports more expensive in the home markets.
Greece submitted a fresh list of economic reforms to Eurozone authorities, estimating the measures could raise as much as €6bn this year. It is the government’s biggest effort so far to unlock €7.2bn in bailout funds before it goes bankrupt. The scheduled meeting of Eurozone finance ministers in Riga on April 24 is shadowed with great uncertainty with officials concerned that Athens does not have sufficient funds to make a €450m payment to the IMF on April 9.
The U.K. economy grew more than initially estimated in the fourth quarter as consumers and exporters steered Britain into its longest stretch of uninterrupted growth since 2008. Household spending rose 0.6 percent in the three months through December and exports jumped 4.6 percent, the most since 2013. Gross domestic product expanded 0.6 percent, more than the 0.5 percent reported last month, for an eighth consecutive quarterly gain.
While the economy powers ahead, the Bank of England says it will keep the key interest rate at a record low as it monitors the implications of the unprecedented slide in the inflation rate to zero. Rising wages and cheaper food and fuel are boosting real incomes, which rose 1.4 percent in the fourth quarter. In the third quarter, GDP growth was revised down to 0.6 percent from 0.7 percent.
With imports rising just 1.6 percent, net trade contributed 0.9 percentage point to GDP in the fourth quarter, the most since the first quarter of 2013. Consumer spending added 0.4 percentage point. Business investment acted as a drag on growth after falling 0.9 percent in the quarter. GDP report showed the savings ratio, the amount of disposable income households set aside rather than spend, rose to 5.9 percent in the fourth quarter from 5.8 percent in the third.
UK Markit Manufacturing PMI increased to 54.4 in March slightly above forecasts at 54.3 which hit an eight-month high, signalling the economy is on course for a healthy expansion in the first quarter of this year.
The U.S. saw the sharpest improvement in manufacturing business conditions for five months at 55.7 in March, up from 55.1 in February. The U.S. manufacturing sector is clearly regaining momentum after a slow start to 2015. However export sales deteriorated amid stronger dollar exchange rate. Job creation also accelerated from February’s seven-month low.
In contrast the ISM manufacturing PMI declined for fifth month in a row to 51.5 which was worse than an expected fall from 52.9 which monitors employment, production inventories, new orders and supplier deliveries.
The Employment Change released by the ADP (Automatic Data Processing) which measures the change in the number of employed people in the US. This fell from 214,000 to 189,000 which is a clear cause for concern since it was forecast to increase to 225,000. A fall in this indicator has negative implications for consumer spending which has further repercussions on economic growth. This could also dampen expectations on any early interest rate rise.

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