Bank Research Consensus Weekly 05.03.10
Concerning Conditional Commitments
Minoj Pradhan, Global Economics Team, Morgan Stanley
364 days ago, we wrote about a different kind of unconventional measure that many G10 central banks were adopting - a commitment to keeping rates at extremely low levels for a considerable period of time (see "A Different Unconventional Measure", The Global Monetary Analyst, April 29, 2009).
U.S. Review: Production Is Now Running Ahead of FInal Demand
John E. Silvia, Ph.D. Chief Economist, Wachovia
Real GDP grew at a 3.2 percent annual rate, as strong growth in consumer spending and inventory rebuilding contributed the bulk of the improvement during the quarter. Business fixed investment was supported by equipment and software spending, while weakness in structures continued. Government outlays were a mixed picture, with federal expenditures expanding but not enough to balance out the decline in state and local spending. International trade contributed positively with exports up 5.8 percent at an annual rate. Inflation remained relatively tame during the quarter, with the GDP deflator climbing just 1.4 percent on a year-over-year basis.
Canada - Leader of the Pack, But Pace Will Ease as Consumers Tire
Grant Bishop, Economist, TD Bank Financial Group
Canada’s strong pace of rebound during this initial phase of recovery has owed to domestic demand and, in particular, consumption growth. But the recovery looks increasingly front-loaded, with future domestic demand pulled forward by the current interest rate environment. As the contribution from consumption fades, growth will increasingly depend on a pick-up in investment and trade. While Canada’s nearterm rebound has been a domestic story, our prospects are intimately linked to the sustainability of the global recovery. And, as market action this week highlighted, that worldwide process is fraught with many risks.
This week’s data on GDP growth for February met market expectations, confirming that Canada continued to see a rapid upswing during the now-completed first quarter. However, while pointing to a clip of over 5% annualized for Q1/2010, the pace of GDP growth will ease from its hereto impressive pitch, as was evdient in the monthly movement. The monthly gains owed strongly to manufacturing, which contributed nearly half of the advance. Although the manufacturing outlook is positive given the improvements in new and unfilled orders, the push from the manufacturing rebound will nonetheless moderate. As well, with the industry’s pace of sales gains ebbing more rapidly than value-added for the industry, the GDP push owed to easing drawdown of manufacturing inventories. Presently there is a strong incentive to build inventories given low input costs and anticipated price growth.
UK Inflation to Fall Back Sharply Over The Coming Year
Adam Chester, Seniot UK Macroeconomist at Lloyds TSB Corporate Markets
Recent inflation developments have raised the spectre of a possible resurgence of sustained price pressures in the UK. Since dropping to a low of 1.1% last September, the annual rate of consumer price inflation has risen to 3.4% (see chart a). CPI inflation has now been above the government’s 2% target for four consecutive months, with the move above 3% in January prompting the BoE Governor to write an open letter of explanation to the Chancellor, explaining the reasons for the overshoot and the measures being taken to rectify it.
It has not only been CPI inflation that has risen noticeably. The rate of change of the broader retail prices index, which includes housing costs, has also rapidly reversed its previous decline. Since posting outright deflation of 1.6% in June 2009, annual RPI inflation has risen to 4.4%, as the fall in mortgage rates in late 2008 and early 2009 have dropped out of the annual comparison, and house prices have recovered.
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