Archives of “Economy” category

rss

BOJ reportedly expected to cut growth forecast for the year as virus restrictions dampen outlook

  
Analysis, Economy

Reuters reports, citing sources familiar with the situation

BOJ
The report says that the BOJ is expected to slash this fiscal year’s growth forecast in its latest projections next week, as another state of emergency for Tokyo threatens to dent consumption and general economic activity.
Adding that the BOJ is to stick with the view that the economy is headed for a moderate recovery. As for inflation, the sources say that the central bank is likely to revise up this fiscal year’s inflation forecast to reflect the recent boost in energy prices.
Just a bit of a heads up before the BOJ policy meeting decision next Friday on 16 July as these leaks tend to prove to be credible most of the time.

China says that timely use of RRR cuts will support real economy

  
Analysis, Economy

Remarks by China’s Cabinet via state media

China
  • Will not resort to flood-like stimulus
  • Will keep monetary policy stable, increase policy effectiveness

Just be wary that when China issues such statements, they are usually to preempt the market that there might be possible decisions on said matter on the way.

There have been concerns as of late that policy support may be waning in China but officials have rebuffed that narrative in the past week or so, and this adds to that.

European Commission raises 2021 GDP growth forecast from 4.3% to 4.8%

  
Analysis, Economy

The European Commission releases its latest quarterly projections

  • Eurozone 2021 GDP growth forecast 4.8% (previously 4.3%)
  • Eurozone 2022 GDP growth forecast 4.5% (previously 4.4%)
  • Germany 2021 GDP growth forecast 3.6% (previously 3.4%)
  • France 2021 GDP growth forecast 6.0% (previously 5.7%)
  • Eurozone 2021 inflation forecast 1.9%
  • Eurozone 2022 inflation forecast 1.4%
There are mainly upward revisions to the report with regards to this year’s projections, with a bit of a mixed bag for next year. Of note, the commission underscores that they see upside risks to inflation and overall risks to the economy are balanced.

 

Germany May factory orders -3.7% vs +0.9% m/m expected

  
Analysis, Economy

Latest data released by Destatis – 6 July 2021

  • Prior -0.2%
  • Factory orders WDA +54.3% vs +59.4% y/y expected
  • Prior +78.9%
That is back-to-back months of relatively weak industrial orders though there are some positives when looking the details. Domestic orders grew by 0.9% on the month while the drag largely came from a drop in foreign orders, declining by 6.7% in May.
Compared with February 2020, new orders in May were seen 6.2% higher so that is at least a good thing if you want to measure back to pre-pandemic levels. That said, real manufacturing turnover is just over 5% lower compared to what it was back then.

Eurozone June final services PMI 58.3 vs 58.0 prelim

  
Analysis, Economy

Latest data released by Markit – 5 July 2021

  • Composite PMI 59.5 vs 59.2 prelim

A slight revision higher on the balance of things and that marks the quickest growth in Eurozone activity in 15 years, with both the manufacturing and services sectors showing marked improvement as virus restrictions are loosened.

That said, supply disruptions are leading to higher cost inflation and that remains a threat to the recovery momentum if it continues persistently in the months ahead.
Markit notes that:

“Europe’s economic recovery stepped up a gear in June, but inflationary pressures have also ratcheted higher.

“Business is booming in the eurozone’s service sector, with output growing at a rate unsurpassed over the past 15 years. Added to the impressive growth seen in the manufacturing sector, the PMI surveys suggest the region’s economy is firing on all cylinders as it heads into the summer.

“Service sector growth has picked up across the board among the countries surveyed, with hard-hit sectors such as hospitality and tourism now coming back to life to join the recovery as economies and travel are opened up from virus-related restrictions.

“A wave of optimism that the worst of the pandemic is behind us has meanwhile propelled firms’ expectations of growth to the highest for 21 years, boding well for the upturn to gain further strength in coming months.

“Firms are increasingly struggling to meet surging demand, however, in part due to labour supply shortages, meaning greater pricing power and underscoring how the recent rise in inflationary pressures is by no means confined to the manufacturing sector. Service sector companies are hiking their prices at the steepest pace for over 20 years as costs spike higher, accompanying a similar jump in manufacturing prices to signal a broad-based increase in inflationary pressures.”

UK June final manufacturing PMI 63.9 vs 64.2 prelim

  
Analysis, Economy

Latest data released by Markit – 1 July 2021

The preliminary report can be found here. A slightly lower revision but this is still a very solid reading, with output, new orders, and employment conditions continuing to hold among the best seen throughout the survey’s history.
That said, much like the euro area’s readings earlier, supply chain disruptions are leading to a record rise in price increases. Markit notes that:

“UK manufacturing maintained a near survey-record pace of expansion at the end of the second quarter, as the reopening of economies at home and overseas supported increased production, new orders and employment. Solid business confidence and rising backlogs of work also suggest that the current upturn has further to run.

“The sector is still beset by rising cost inflationary pressures, however, as Brexit-related trade issues exacerbated global supply chain delays. The resulting widespread raw material shortages drove purchase prices up to the greatest extent on record, leading to an unprecedented steep rise in selling prices. There are also widespread reports of supply issues causing disruptions to production schedules and impeding the re-building of buffer stocks.

“The continued inflationary impact of capacity issues at both manufacturers and their suppliers will be a further factor keeping headline inflation above the Bank of England’s 2% target in coming months.” 

Eurozone June final manufacturing PMI 63.4 vs 63.1 prelim

  
Analysis, Economy

Latest data released by Markit – 1 July 2021

A slight revision higher with the headline being yet another fresh record for a fourth consecutive month now as manufacturing conditions in the region keep more solid as virus restrictions are loosened, with output coming in strong.

That said, there is a consistent theme across all the readings and that is despite more robust demand conditions in general, there is marked supply-side constraints that are persisting – which is leading to price rises at a record pace in Europe.
It remains to be seen if said disruptions will eventually come to dampen demand prospects but for now things are still holding up well as the reopening gets underway.
Markit notes that:

“Eurozone manufacturing continued to grow at a rate unbeaten in almost 24 years of survey history in June as demand surged with the further relaxation of COVID-19 containment measures and vaccination progress drove renewed optimism about the future.

“However, the sheer speed of the recent upsurge in demand has led to a sellers’ market as capacity and transportation constraints limit the availability of inputs to factories, which have in turn driven industrial prices higher at a rate not previously witnessed by the survey. Manufacturers are clearly willing to pay more to ensure sufficient supplies of key inputs.

“Encouragingly, there are several survey indicators which add to hopes that the current spike in prices will prove transitory.

“Widespread issues such as port congestion and a lack of shipping containers should soon fade as the initial rebound from the pandemic passes. Similarly, recent months have seen safety stock building as companies seek to protect themselves against potential future supply-chain disruptions, which has exacerbated the imbalance of demand and supply in the short-term. Once sufficient stocks are built, this effect should likewise fade.

“Finally, we have also seen the expansion of capacity via record employment growth and greater capital expenditure on business equipment and machinery. This expansion should raise output in sectors that are currently straining to meet demand, and hence remove some of the upward pressure on prices for these goods.”

Go to top