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The BoE left its monetary policy unchanged in February, in line with expectations. The decision was unanimous, making a change from the outcome of votes in previous months. The BoE made significant downward revisions to its growth and CPI inflation projections alongside its February Inflation Report, with inflation projected to remain below the 2% target until the end of 2017.
Highlights: Kazakhstan, Central Asia and China form the New Silk Road. What does it mean when an oil-producing country (Azerbaijan) negotiates IMF aid? In the Middle East, unemployment is relatively stable, but the social risk is high in the longer term. Nigeria holds down its exchange rate but the naira surges on the local market. No big surprises in China! Brazil has no plans to hike its key rate for the time being.
In real estate terms, 2015 was a good year. Housing sales rebounded in both the pre-owned and new-build sectors. Prices fell very little and signs of the market firming emerged at year-end. Total mortgage lending picked up, with new lending almost doubling relative to 2014. In fact, it seems to be cyclical, and linked to the level of lending rates and the new-build stimulus plan. Outlook for 2016 is more uncertain.
The ECB clearly opened the door for more easing, likely as early as the next meeting on 10 March. Among the probable measures, we expect a deposit rate cut and an extension of QE by six months. The ECB may consider other measures but, at this point in time, we do not see them as necessary. M. Draghi highlighted the uncertainties surrounding the Eurozone recovery and how it is weighing on price stability: Emerging market growth, financial volatility and geopolitical risks.
Our Q4 2015 growth forecast has been revised down to 0.2% q/q. In 2016-2017, the recovery in activity will be mainly stimulated by external factors and by specific economic policy measures. Growth should, however, be held back by structural factors and the slowdown in emerging countries. Consumption will continue as the main growth driver. Despite the relatively upbeat environment, the recovery should, therefore, remain sluggish.
Cereal prices continue to weaken, as a result of bumper crops two or three years running. Stocks are expected to remain high. The level of demand is essential in this context; paradoxically, the principal expectation of support for consumption is to be found in China. The current economic slowdown has had little impact on food consumption there, which remains healthy.
The referendum promised by David Cameron by the end of 2017 on the United Kingdom's membership in the European Union (EU) is without doubt one of the main risks to monitor in Europe in the months ahead. The possibility of leaving the EU (Brexit) cannot be ruled out. Such an event would constitute a precedent for Europe, which would be very damaging for the whole EU. Our scenario remains compatible with the United Kingdom staying in the EU following a favourable outcome in the negotiations.
Edition February 5, 2016
UK: CPI inflation: actual and expected by the MPC
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