Daily Commentary BY THE CURVE TEAM –

Potential For An Economic Storm On The Rise

12th of February, 2019

The global outlook has been in focus with recent events offshore prompting the IMF to warn of a potential “economic storm” that is likely to amplify already deteriorating global economic conditions.

On the data front, growth in the UK continues to slow. Growth slowed from 0.6% in Q3 to 0.2% in Q4 last year, adding to the slowdown we have already seen across the Eurozone. In addition to these soft figures, there’s still much uncertainty around the Brexit mess with May now considering a no-deal Brexit as a fallback to save her party.

The political uncertainty continues around the globe with no tangible developments in the US-China trade talks and with much speculation around whether the US will avoid a shutdown before Friday’s deadline.

Moving closer to home, expectations for China’s data releases later in the week don’t bode well for the global outlook. One of the main figures to look out for is China’s YoY PPI, which was 0.9% in December, but is expected to drop to 0.3% in January.

This fall is key because China is a major manufacturing exporter and as a result, moves in their PPI closely track world trade prices. If these prices starts to decline, this is likely to exacerbate existing disinflationary pressures we’ve seen around the world.

Much of the worsening international conditions and its’ implications for the global outlook were captured in IMF Managing Director’s comment on Sunday where Christine Lagarde said that:

“When there are too many clouds, it takes one lightning (bolt) to start the storm” 

Indeed, central banks around the world all have this in mind with the Fed pausing its’ interest rate hike cycle, the RBA shifting to a more balanced outlook and the RBI cutting rates by 25 basis points last Thursday.

Neyavan Suthaharan

Client Services Officer