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The 1Q curse strikes again

Published Friday, April 29th, 2016

All is not well with the global economy. The latest health check of the US economy revealed that it has joined several other major economies in suffering a slowdown in the first quarter of this year. The world’s largest economy grew at its slowest pace in two years in the January-March period with activity expanding by 0.5% which was sharply down on the 1.4% in the previous quarter. The disappointing reading is in contrast to the strengthening US labour market conditions and will add to the uncertain Fed policy tightening outlook. Some have rightly cautioned that the US economy has in recent years reversed a sluggish 1Q with a rebound in the subsequent months though the worry this time is that some of the weakness has been tracked at the start of the second quarter.

Adding to the downbeat tone were US and European investors who had the first chance to digest the BoJ inaction. Its unexpected decision to refrain from launching further stimulus measures rattled financial markets as equity gauges across the currency-bloc initially tracked the overnight slump in Asia before recovering to end the session largely unchanged. There was no such reprieve on Wall Street where shares slumped late in the session to end the day 1% lower with disappointing earnings from high-profile tech companies compounding the uneasy mood.

It will now be left to the eurozone to spare the developed world’s economic blushes with today’s first estimate of 1Q GDP growth. Economic activity is expected to have ticked up from the last quarter in 2015 though figures released yesterday have shown that inflation – or better say the lack of – remains a thorn in the side of policymakers. Spanish deflation deepened this month as the fall in consumer prices accelerated to -1.2% from a year ago compared to -1% in March. Moreover, Germany’s rebound into inflation in March has proved to be short lived after consumer prices fell back into negative territory in April. Further angst has been provided this morning by figures revealing that German retail sales slumped by 1.1% in March in what was the biggest fall in 18 months.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.