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Macroeconomic picture - March 2015







Continued recovery beyond the slight decline in growth recorded since the end of 2014.

  • GDP rose 2.2% in Q4 driven by consumer spending as investment fell. Most figures (apart from the labour market) have disappointed since the end of 2014, but this is probably due to temporary consolidation after the sharp acceleration in previous quarters.
  • Households, which have considerably reduced their debt in the last few years, are benefiting from the continuing improvement in the job market and falling fuel prices.
  • The recovery will continue in 2015, but improvement will be limited due to the ongoing weakness in wage dynamics and falling investment in the energy sector. Economic weakness in the rest of the world and the rising dollar will put a slight damper on activity.
  • The Fed will normalise its policy, but very slowly: with inflation so weak, the first rate increase might not come until late 2015.
  • Growth potential stunted
    for the foreseeable future
    (“secular stagnation”)
  • Contagion of the rest of
    the world’s economic
    and/or financial economic


  • Brazil’s HSBC Manufacturing PMI came out to 49.6 in February, higher than expected (49.0), but lower than the previous month (50.7).
  • Consumer price inflation increased again: 7.36% year-on-year in February compared to 6.69% the previous month. Despite the BCB tightening interest rates, it does not appear to have contained inflation, nor the decline in the real.
  • The two-notch downgrade of Petrobras by Moody’s increases pressure on Brazil, which may subsequently see its sovereign rating downgraded to below Investment Grade.


  • Overly contractionary
    monetary policy
    combined with overambitious fiscal
    consolidation could hurt






Continued recovery, sustained by the evolution of the monetary and fi scal policy mix.

  • Economic growth slightly beat expectations in Q4 (+0.3%).
  • The recovery will remain slow in 2015 due to 1/the rollback of austerity measures (2015 budgets, a more accommodative policy stance by the European Commission and new measures, such as the Juncker Plan); 2/the improvement in banking credit thanks to the actions undertaken by the ECB in 2014 (monetary policy and cleaning up bank’s balance sheets) to which will be added the asset purchase programme announced on 22 January 2015; 3/a more favourable trend in real estate cycles in several countries; 4/the lower euro and the falling price of oil.
  • Inflation will remain in negative territory for part of the year. The economic upturn and the ECB’s asset purchase programme should nonetheless prevent a self-sustaining deflationary spiral. Political risk is high (Greece, and even Spain at the end of the year).
  • Intensified deflationary
  • Contagion of the emerging
    world’s economic and/ or financial economic hardships
  • Political risk (rise of anti-institutional parties at elections slated for 2015)



Recovery still buoyant, but will be a little less strong in 2015 than in 2014.

  • The solid recovery underway is expected to continue in 2015. Increased consumption and the rise in real estate (despite a slowdown) will remain important factors. Increased business investment (which has been revised upwards) should enable gradual rebalancing. Exports will continue to lag, curbed by the slow recovery in the eurozone.
  • The job market is improving: real wages are finally rising. The drop in inflation reduces the urgency for higher key rates, which are unlikely to occur before the end of 2015.
  • A new housing bubble
  • Prolonged weakness
    of exports
  • Elections in May
  • Rise of the issue
    of exiting the EU





  • In China, activity in the manufacturing sector is expanding once again. The HSBC Manufacturing PMI for February surprised on the upside with a preliminary estimate of 50.1 (versus an expected 49.5, and 49.7 in January). This is a four-month high, but the sub-index of new export orders saw its steepest drop in 20 months, to 47.1, a three-point decline from January.
  • With the slowdown in growth, but above all due to the deflationary threat facing the Chinese economy, the PBoC accelerated its monetary easing. After lowering the reserve requirement ratio for commercial banks by 50 bp at the beginning of February, the PBoC lowered its key interest rates by a further 25 bp at the beginning of March (the second cut in three months). Other measures are expected in the coming months.
  • Quicker than expected
    deterioration in loan
  • Drop in external demand
  • Increasing deflationary
  • Inadequate measures
    to support the economy


  • The GDP calculation method has changed considerably, putting Q4 growth at +7.5% year-onyear. Therefore, this fi gure should not be compared to previous fi gures for purely statistical reasons. Indeed, it is difficult to establish a relevant assessment of recent trends.
  • The consumer price index came out to +5.1% year-on-year for January. Inflation stabilised; it had been above 8% when prime minister Modi took offi ce. In this context, the RBI still has leeway to continue lowering its rates.
  • Rise in commodity prices
  • A quicker-than-expected
    normalisation of US
    monetary policy


Gradual recovery following disappointing figures

  • After two negative quarters, growth became slightly positive in Q4, but investment remains low.
  • There are no clouds on the political horizon but the government’s capacity to deliver important structural reforms remains unproven.
  • The drop in oil prices is undermining the possibility of quickly achieving the BoJ’s 2% inflationtarget. However, the BoJ views energy price developments as positive for the Japanese economy and an intensification of its asset purchasing policy does not appear to be on theagenda
  • Exposure to the
    slowdown in China
  • Inflation ebbing with
    lower oil prices


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ITHURBIDE Philippe , Global Head of Research
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Macroeconomic picture - March 2015
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