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June 2017 | World Economics


World Economics Monthly - Outlook

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EU business confidence on a high
Business confidence continues to soar in the EU, particularly in Germany, where the Ifo Index recorded the best result in its 26-year history during June and consumer confidence rose to its highest level since 2001. In neighbouring France, the pace of employment growth and retail sales is picking up. Meanwhile, the Eurozone Manufacturing Purchasing Managers’ Index (PMI) rose from 58.3 to a 74-month high of 58.5 between May and June, with the rate of employment growth in manufacturing remaining close to a 20-year high.

Fed still sees inflation risk in the USA
Despite the fact that both headline and core inflation remain subdued, the Federal Reserve (Fed) remains relatively cautious on the outlook for consumer prices in the USA. It raised rates by 25 basis points during June and signalled that a further 25-point increase could be in prospect before the end of this year. With house prices buoyant, consumer confidence on a high, the unemployment rate at its lowest level in the decade and wage growth picking up, this caution is probably warranted.

Chinese central bank faces a delicate balancing act as it eases money-supply growth
Growth in the M2 money supply slowed to its lowest rate in more than 20 years during May. This reflects deleveraging in the financial system, and the People’s Bank of China (PBOC) has suggested that slower growth in money supply could be a “new normal” – unusually voluble guidance from what it normally a rather taciturn institution. However, the bank faces a difficult challenge – deleveraging is necessary to stabilise the housing and financial markets (in conjunction with a range of administrative measures, such as raising deposit requirements), but if it is overly aggressive, it could threaten the liquidity of some financial institutions.

Chinese M2 Money Supply Growth

German Business Confidence Ifo Index