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Forecasts and market analysis based on price assessments from Fastmarkets MB and Fastmarkets AMM

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March 2017 | World Economics


World Economics Monthly - Developed Economies

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Strong end to the year for US manufacturing...
The Institute of Supply Managers’ manufacturing PMI rose from a November reading of 53.2 to a 2016-high of 54.7 in December, with both new orders and production extremely strong (readings of 60.2 and 60.3, respectively). According to the latest edition of the Federal Reserve’s Beige Book, “the economy continued to expand at a modest pace across most regions from late November through the end of the year.”

...while rising prices have yet to dampen the consumer mood
Inflationary pressure is also on the rise, with the annual rate of headline consumer price inflation accelerating for the fifth successive month, from 0.8% in July to 2.1% during December. Consumer confidence continues to strengthen, with the Conference Board index rising from 109.4 to 113.7 between November and December, driven by a sharp increase in the expectations component (from 94.4 to a 13-year high of 105.5) on the back of improved labour market conditions and a wave of post-election optimism that is driving up stock prices.

Japanese consumer confidence hits three-year high
The Japanese consumer confidence index rose from 40.9 to 43.1, its highest level since September 2013, between November and December. However, income growth remains relatively modest, with this component rising by 1.5 points, to 41.9. Deflationary pressure on producer prices is abating, with the annual rate easing from -4.2% to -1.2% between June and December. However, this is mainly due to the rising cost of raw materials, rather than increased domestic demand. Investment remains weak, with core machinery orders declining during three of the four months to November, decreasing by 5.1% month-on-month in the latter month.

Consumer price inflation spikes to 28-month high in the UK...
Inflationary pressure continues to mount in the UK, with the annual rate of growth in consumer prices accelerating from 1.2% to a 28-month high of 1.6% between November and December, driven by a combination of rising oil prices and the depreciation of sterling. With the annual rate of producer price inflation accelerating for the tenth month in a row during December (from -1.1% in February to 2.7% during December), consumer price inflation is likely to remain on an upward trajectory over the coming months.

...putting retail sales under pressure
A combination of accelerating inflation and uncertainty regarding the consequences of Brexit are squeezing consumer confidence, with the annual rate of growth in retail sales volumes easing from 7.2% to 4.3% between October and December. However, pessimism should be tempered by the fact that the October figure represented a 14-year high.

Sharp acceleration in consumer and producer price inflation in Germany...
Inflationary pressure is also mounting in Germany, with the headline rate of consumer price inflation accelerating from 0.8% to 1.7% between November and December. As in the UK, the annual rate of producer price inflation, which accelerated from 0.1% to 1.0% between November and December (this figure stood at -3.1% as recently as April), points to a further acceleration in consumer prices. Consumers remain unfazed for the moment – with a reading of 9.9 in January, the GfK consumer confidence index remains close to September’s 15-year high of 10.2. Having contracted by 0.8% y-o-y in October, retail sales rose by 3.2% during November.

Buoyant French manufacturing pushes capacity utilisation towards a ten-year high
The Markit France Manufacturing PMI rose sharply between November and December 2016, from a reading of 51.7 to a 67-month high of 53.5, with inventories declining despite an increase in output for the fourth successive month. Growth was broadly based across domestic and export markets, with the rate of job creation reaching its highest level since June 2011. Having hit its highest level since July 2011 in December (a reading of 105.5), the business climate index retreated somewhat during January (to 104.1). Meanwhile, capacity utilisation in industry rose to almost 84.0% in January 2017, above its 1995-2007 average for the second time in three months – the first time this has occurred since mid-2008.

French Business Climate Index

ISM US Manufacturing PMI: December 2016

UK Retail Sales Volumes