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  2. The Chief Economist's weekly update
Expertises d'investissement

The Chief Economist's weekly update

The Chief Economist's weekly update

To help you navigate through the economic news, here is a summary of last week’s main events and what to look out for next week.

Last week’s key economic news (from 23 to 27 March 2020)

  • In the US, first estimates of the PMI manufacturing declined from 50.7 to 49.2, but this modest fall does not fully reflect the problems in delivery and lower demand, and therefore lower production, orders and exports. The PMI services fell sharply (from 49.4 to 39.1) with a similar decline in opinions on current and future activity. Both business indicators also pointed towards a sharp fall in employment. In other business surveys, surprisingly, the March Richmond business survey was up (from -2 to 2) due to a rise in shipments, but present and future demand collapsed, but the Dallas survey has sharply fallen. Durable goods orders (February) remained strong thanks to a flurry of orders, but core orders were down by 0.8% m/m; the shutdown in activity in several sectors (airlines, Boeing, autos) in the US and in the rest of the world should lead to further declines in orders and production. On the consumer side, final consumer sentiment data (Michigan index) has decreased more than initially estimated, back to the lows seen in 2016-2019 period: deteriorating financial situation, weakening outlook and rising concerns on unemployment have weighted on willingness to buy. Weekly jobless claims surged to 3.2 million people as the shutdown in activity spread to several sectors and quarantine began in some states. In housing, new home sales weakened after recording high levels the previous month (800,000); house prices (FHFA price index January) remained on a strong trend (5.2% y/y).
  • In the eurozone, early estimates of the eurozone PMI manufacturing fell, but by slightly less than expected (from 49.2 to 44.8), partly due to longer supply delivery times which was counted as a positive; otherwise, sentiment on production, orders and exports decreased sharply. The eurozone’s PMI services fell by more than expected (from 52.6 to 28.4) and the index came in below the lows seen in 2008; both indicators revealed a sharp decrease in employment and the composite index is now pointing towards a significant recession at the eurozone level. The German Ifo index (final data) was lower than the first estimates (down from 96 the previous month to 86.1) and it abruptly entered into the low range seen in 2008 (80–90), as shown by preliminary PMI data (the composite PMI stood at 37.2, down from 50.7 the previous month); these indicators strongly suggest as deep a recession as that of 2008. At eurozone level, first estimates of consumer confidence fell, but by slightly less than expected and the index remained above the 2008 and 2012 lows. M3 remained on a stable trend (5.5% y/y), but lending to corporates moderated from 3.2% to 3% y/y. In France, business confidence declined (from 105 to 95) due to lower orders and falling expectations on future production and consumer confidence has eased, but less than expected because the survey was conducted before the containment of the population. In Italy, both consumer and business confidence have fallen over the month, back to their 2012 levels, but further decrease is expected.
  • In the UK, first estimates of manufacturing PMI declined from 51.7 to 48 due to lower sentiment on production, orders and employment as a result of a lack of demand and components, as well as delivery problems. The services PMI fell more sharply from 53.2 to 35.7 and the index is now lower than in 2008 (39.7). The business survey (CBI trend orders) also deteriorated to lows seen in 2019 and in 2010. Retail sales (February) have fallen more than expected (-0.3% m/m) after strong numbers in the prior month. Inflation (February) was firmer than expected (0.4% m/m) due to rebounds in several sectors and despite the fall in energy prices. Therefore, the yearly change eased only moderately from 1.8% y/y to 1.7% y/y. PPIs declined (-1.2% m/m) due to a sharp fall in energy prices and the yearly trend once again turned negative (-0.5% y/y). In housing, the price index (January) moderated but remained positive (to 1.3% y/y from 1.7% y/y the previous month). In its regular meeting the Bank of England did not change its current strategy but pointed out the major downside risks to the economy and mentioned being ready to take further action.
  • In Japan, early manufacturing and services PMIs both fell sharply and, as seen in other countries, the largest fall occurred in the service sector (the index fell from 46.8 to 32.7).
  • Economic indicators have begun to reflect the shock to growth and the fact that the world will probably slide into recession in the first half of 2020, as demonstrated by the explosion in US jobless claims and the collapse of industrial sentiment indicators, especially in service sectors. Quarantine measures are increasing in the United States, being maintained in Europe and are being rolled out in India, paralysing the majority of the global economy. In the face of this, the US administration is in the throes of adopting a massive economic support package (some USD 2 trillion), with help for businesses and money being given to households to compensate for loss of income. Germany has adopted a stimulus package worth some EUR 156 billion and has put in place extended loan guarantees: the probability that the European Monetary System (SME) will be used is increasing and the ECB has stated that it stands ready to mobilise new weapons in its economic arsenal (such as outright monetary transactions), which will allow it to increase its bond-buying programme to help support those countries in trouble. The financial markets remained volatile despite combined efforts from economic policy to try to stabilize and restore some market functioning. The future challenge for economic policies will be to avoid a permanent spike in unemployment caused by the collapse in economic activity.






Important for the scenario for next week:


  • In the US, it will be a busy week, with a focus on labour data and final estimates for business confidence indices (PMI, ISM). The PMI manufacturing should confirm the fall seen in early estimates and the consensus also expects the ISM to weaken from 50.1 to 45.5. The services PMI should be confirmed at a depressed level (39.1) and the non-manufacturing ISM is expected to fall from 57.3 to 48.5. Downside risks on data are huge and visibility is particularly low as several industrial sectors and consumer services have gone into quarantine and a temporary shutdown. Other regional business surveys (Chicago, Dallas) should also fall. Final factory orders data should confirm the fall seen in core capital goods orders (-0.8% m/m in first estimate). On labour, the ADP survey is expected to show a 125,000 decrease in job creations, down from 183,000 the previous month; in parallel, non-farm payrolls are expected to contract by 81,000 after 273,000 new jobs last month; as seen in the weekly jobless claims data, labour has entered uncharted territory and data will be increasingly hard to predict. The unemployment rate is expected to rise from 3.5% to 3.9%; the surge in weekly claims pointed towards a potentially huge rebound in the unemployment ratio to above 6% in the coming months. On the consumer side, consumer confidence (Conference Board index) is expected to weaken from last month’s highs. On housing, pending home sales are expected to decrease while prices (S&P CoreLogic index) should remain on a moderate upward trend (y/y).
  • In the eurozone, the focus next week will be on the final PMI manufacturing and services: the largest fall is expected to be confirmed in sentiment in services rather than in manufacturing, with more detail on peripherals after the falls seen in France and Germany. In parallel, the EC confidence survey (industry, services and consumer spending) should fall in line with the PMI surveys. First inflation estimates (March) should point towards a significant slowdown (from 1.2% y/y the previous month) due to the large fall in energy prices. Preliminary inflation data will be also published in France, Italy, Germany and Spain. Eurozone PPIs should also reflect a similar move. Retail sales (February) could remain decent before the quarantine and the unemployment rate is expected to remain stable (7.4% for February).
  • In France, consumer spending (February) is expected to be sustained just ahead of the quarantine. In Germany, retail sales (February) are expected to stay positive (0.1% m/m expected by consensus); German labour data could also begin to reflect some of the negative impact to activity after several months of stability in job creations and low unemployment. In Spain, retail sales and industrial production (February) could begin to reflect the negative effects of COVID-19.
  • In the UK, final PMI manufacturing and services data should confirm the fall seen in the first estimates and the large falls in the service sector. Consumer confidence is expected to weaken after the improvement seen at the beginning of the year, but the index should remain above the 2018/19 lows.
  • In Japan, the final manufacturing and services PMI data should confirm the fall seen in the first estimates, particularly in the service sector. Industrial production (February) is expected to contract by 0.2% m/m after a slight rebound last month. The Tankan survey for Q1 should reflect a large fall in sentiment and future activity, which could be as great as in 2012 and 2008. Labour data should remain positive, but some deterioration could be seen in the job-to-applicant ratio and there is the potential for a modest rise in the jobless rate (currently 2.4%). Retail sales (February) are expected to fall by a strong 1.2% m/m after positive data in January.
  • In emerging countries, manufacturing and services PMIs will be released during the week. The consensus expects a rebound in the Chinese manufacturing and services PMI after the sharp fall last month.
  • Central bank meetings: India, Chile.





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