Key highlights of the previous week

Note: This section contains information in English only.
Source: Dukascopy Bank SA
While the UK economy recorded the fastest annual growth rate since the financial crisis of 2007, the economic recovery lost some steam in the final quarter of 2014. The UK economic output slowed to 0.5% in the three months through December, down from 0.7% in the previous quarter and against the City's forecast for a 0.6% growth rate. The final quarter's GDP was affected by weaker production of oil and gas in the North Sea, which translated into an unexpected fall in overall industrial output. GDP advanced 2.7% compared with the fourth quarter of 2013, while economic output in 2014 as a whole was up 2.6% on 2013. Services sector continues to be the main catalyst of headline GDP growth, contributing 0.62 percentage points of growth on the quarter, whereas construction's decline deducted 0.11 percentage points of the total. The International Monetary Fund expects the UK economy to grow 2.7% this year, which would be the fastest in the Group of Seven after the US.
Across the Atlantic, the Fed pointed out that the US economy was growing at a sustainable pace with solid job gains and lower unemployment rate, the central bank said that it would maintain short-term interest rates at record low at least until mid-year. In addition to labour, inflation and financial data, policy makers also highlighted that they would take into consideration international developments when thinking about the timing of the first interest rate hike, adding a reference to global markets for the first time in two years. An increasing number of economists expect that the date of the first rate lift could slip to September or even later. Many Fed officials have pointed to a possible rate increase around mid-year, but they also left the door open to a later move.
In Europe, however, things are getting worse, as deflation deepened in the region. Consumer prices fell 0.6% on an annual basis, following the 0.2% drop in December. However, the Euro zone's unemployment unexpectedly declined to 11.4%, down from 11.5% recorded in November. Spain appeared to be another bright spot, as Spain's GDP rose 2% in the year to the fourth quarter of 2014, compared with  the 1.6% growth rate in the preceding three-month period.
Disinflation contagion is gradually spreading around the world, as Australia's inflation climbed at a slower pace than expected in the final quarter of the year, dragging the annual headline rate below 2%. The nation's CPI ticked up 0.2% in the December quarter amid a recent decline in petrol prices, with the softening inflation outlook providing the central bank with room to cut interest rates, which has been at 2.5% since August 2013, as early as this week. Measured year-on-year, consumer prices rose 1.7%, down from 2.3% and falling short of the RBA's targeted band of 2%-3%. In New Zealand, the central bank kept the official cash rate unchanged and held a more neutral setting on interest, saying that it is ready to cut rates as falling oil prices damp inflation worldwide. The RBNZ maintained its benchmark rate at 3.5%, noting that it expects keep rates unchanged for some time, probably stretching an interest-rate pause into 2016, and that future rates movements, either up or down, will be dependent on economic data.

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Mon, 02 Feb 2015 07:05:04 GMT

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