Stronger consumption demand to propel growth in Developed Markets
July 12, 2018 ( Lagos ): In US, growth has been revised 60bps higher to 2.9% YoY following stronger data over Q2. Specifically, robust external demand, consumer spending, and positive labor data have reinforced outlook for a stronger growth over 2018. Also, positive data on construction expenditure for May further buttressed the shift in construction spending relative to Q1 1819.
That said, reflecting the improved wage rate and consequent impact on personal consumption expenditure (+2.3% YoY) in May, headline inflation rose 30bps MoM to 2.8%. Accordingly, the FED at its June meeting signaled a fourth-rate hike during the year with expectation of 25bps hikes in its September and December meetings now more realistic.
Elsewhere, growth in the Euro area has been revised higher by 50bps to 2.4% YoY in 2018 (previous: 1.9%, 2017: 2.3%), reflecting stronger-than-expected domestic and external demand across the euro area and still supportive monetary policy. However, in the months ahead, while the ECB is expected to dial back on its QE program with possible extinction at the end of the year, the Governing Council still plans to keep rates unchanged over Q1 2019.
In UK, analysts expect a slight slowdown in economic activities over 2018 as consumer spending and business investment are expected to remain weak due to Brexit uncertainties. Consequently, IMF forecasts a slowdown in economic growth to 1.6% in 2018 (FY 2017: 1.8%).
Nonetheless, with the expectation of a rise in wages, which points to further inflationary pressures, analysts perceive the BOE would raise its policy rates before the end of the year. On the political front, having signed the EU withdrawal bill, which repeals the 1972 European communities Act, the concern remains what would be the terms of future relationship between the UK and EU.
Japan economy is projected to moderate to 1.2% YoY in 2018 owing to the duo of slower domestic consumption and the impact of the on-going trade dispute between US and China which creates a cloud around the scope of external trade. Accordingly, the Bank of Japan is expected to sustain its accommodative policy.
Reporting for EasyKobo on Thursday, 12 July 2018 in Lagos, Nigeria
Source: ARM Securities Limited
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