Jan. 15, 2017 (Commerzbank AG) – Global economy – Sentiment better, problems over?
Brighter sentiment indicators around the world indicate that the global economy shifted up a gear at the end of 2016. But for how long? We are sceptical about prospects in China and the US; in China, structural problems are soon expected to rise up the agenda, while in the US already-high capacity utilization rates should prevent a further growth acceleration. In the euro zone too, the economy is unlikely to sustain the higher pace that emerged in recent months. That said, the gradual rise in lending shows that the stimulus from very expansionary ECB monetary policy is having a positive impact. Euro zone growth in the next two years may therefore exceed current expectations.
Forecast changes: stronger growth
At our monthly forecast meeting, we revised up our euro zone, German and US GDP growth forecasts. One factor behind this is the faster pace emerging for the winter half year.
ECB meeting: ECB should stay true to its line
After the December decision to extend the bond buying programme to the end of 2017, the ECB Council will adopt a waiting stance at its meeting on Thursday. It will make it clear that despite recent positive data, the Council is not planning to enter the exit phase.
Outlook for the week of 15 to 20 January
- Economic data: In the US, we expect to see December industrial production post the largest monthly gain since May 2010, as “hard” data reflects recent sentiment indicators. Chinese GDP likely expanded strongly again in Q4 (6.7% y/y).
- Bond market: We look for the Bund curve to steepen again and reiterate our call to reduce peripherals exposure amid the current spread tightening move.
- FX market: Dollar investors will to wait until Mr Trump is inaugurated before they can hope to get in-depth details on his economic programme which suggests the dollar will not benefit from any tailwinds for now.
- Equity market: 2017 EPS forecasts in European markets have enjoyed positive upward revisions of late although US markets have been less fortunate due to the recent dollar rally.
- Commodity market: Brent oil should continue to hover around 55 USD next week although we believe this is unjustifiable in the medium term as US supply rises.