Global Overview
(i) The International Monetary Fund (IMF) cuts its global growth forecast for both 2014 and 2015 as economy recovery was weak and uneven. It also warned about the risks of rising geopolitical uncertainty (e.g. Russia/Ukraine crisis, ISIS in Syria&Iraq, and protest in Hong Kong) and a financial-market correction.
(ii) The 2015 global economic growth is revised downward to 3.8% for 2015, compared with a July forecast for 4%. The 2015 global growth is cut by 0.2% to 3.8%, whilst 2014 is cut by 0.1% to 3.3%.
(iii) Also, the World Bank lowered its forecasts for growth in developing East Asia this year as China’s expansion moderates and policy makers brace for tighter global monetary conditions. The region is forecast to grow 6.9% in 2014 and 2015, down from 7.1% projected in April. China will expand 7.4% this year and 7.2% next year, compared with 7.6% and 7.5% previously forecast.
USA
(i) The US economy expanded in the 2Q2014 at the fastest rate since the 4Q2011 as companies stepped up investment and households boosted spending. GDP grew at a 4.6% annualized rate in 2Q2014, up from a previous 1Q2014 of 4.2%.
(ii) US consumer credit increased by US$26.0 billion to US$3.2 trillion in July, which implies that the US consumer confident is improving. With banks are showing a greater willingness to extend credit cards and finance car purchases amid growing demand and rising competition, the accessibility to credit will help spur gains in the housing industry as well with the possibility of accelerating up inflation rate to the desired Fed’s target of 2.0%.
(iii) The Fed indicated improving labor market and rising inflation are likely to create conditions for an initial interest-rate increase in the 1H2015 or later in the year.
Euro-zone
(i) The Euro-zone’s economy stagnated in the 2Q2014 (0.2% in 1Q14) as investment fell by 0.3%. Consumer spending and exports rose, while change in inventories subtracted from GDP. As a result, ECB lowered its 2014 and 2015 GDP forecasts to 0.9% and 1.6% respectively.
(ii) Euro-zone’s inflation also slowed in September to the lowest level in five years, at an annualized rate of 0.3% (August 2014: 0.3%). It is the lowest level of inflation since October 2009, adding to fears of a deflationary spiral. Inflation has been persistently below the European Central Bank's (ECB) 2% target rate.
(iii) The ECB has introduced measures from negative interest rates and long-term loans to asset purchases to fend off deflation and regenerate growth. On September 4th 2014, ECB announced a further cut of 10 bps to its key interest rate. The benchmark rate was lowered to 0.05%, the deposit rate is now -0.2%, and the marginal lending facility is 0.3%. ECB intends to steer the size of its balance sheet back to the levels seen at the start of 2012, indicating an increase in assets of as much as €1trn (US$1.3trn).
Japan
(i) The Japanese economy contracted 1.7% in the 2Q2014 (1Q2014: 1.5%) as the weaknesses in exports and production strike a note of concern about the strength of the economy. Outbound shipments unexpectedly fell in June, while output slumped the most in more than three years as retail sales dropped, showing its economy struggling to rebound from a sales-tax increase last quarter.
(ii) The Bank of Japan (BOJ) has reaffirmed that the Japanese economy is recovering at a moderate pace and will continue its accommodative measure, i.e. the asset purchase programme, to support further growth.
(iii) In addition, the BOJ maintained its pledge to increase the monetary base at an annual pace of 60 trillion Yen to 70 trillion Yen.
Malaysia
(i) For the Malaysian economy, exports and private sector activity continue to exhibit strength due to the recovery in the regional demand and supported by stable income growth and favourable labour market conditions. The overall growth momentum is expected to be sustained.
(ii) Malaysian annual inflation rate edged up to 3.3% in August from 3.2% in July mainly driven by higher food prices. The inflation is expected to be elevated to 3.5% in 2015 in anticipation of GST and subsidy rationalisation.
(iii) Bank Negara Malaysia (BNM) raised its Overnight Policy Rate (OPR) for the first time in over 3 years by 25 basis points to 3.25% on July 10th 2014 as inflation rate remains above its long-run average. Economists anticipate that the OPR will likely be kept at 3.25% for the rest of the year with a potential rate hike of 25 basis point in the 1H2015.
(Sources: Various countries statistic sites, research reports and news portal)
