- In the UK, focus was on the Bank of England’s monetary policy decision which was seen as one of the closest decisions in recent history and Governor Mark Carney’s last meeting. Assessing the recent rise in business sentiment since 12 December general election against poor economic fundamentals, the committee voted 7-2 in favour of keeping interest rates unchanged against the alternative of cutting rates. Forecasts for the economy were revised downwards, with GDP growth expected to decelerate to 0.75% in 2020, and estimates of potential supply growth to remain subdued over the forecast horizon. The MPC noted that if global growth failed to stablise or if Brexit uncertainties remained entrenched, monetary policy may need to reinforce the expected recovery in UK GDP growth and inflation.
- Data on the Eurozone economy showed that economic growth decelerated at the end of 2019, growing by the weakest pace in almost 7 years. Eurozone GDP rose by merely 0.1% over quarter, with surprising contraction in activity in France (-0.1% qoq) and Italy (-0.3% qoq) while activity in Germany is likely to have picked up. The latest outcomes highlight the precarious nature of the economic recovery, and reinforces the need for policy accommodation.
- In the US, data showed that GDP rose by 2.1% on a quarterly annualised rate in the last quarter of 2019, taking the full 2019 calendar year to 2.3%. Real consumption, residential fixed investment, among government purchases more than offset the third consecutive quarterly decline in business fixed investment and a fall in inventory investment. Net trade also contributed to growth, driven by a large fall in imports potentially reflecting trade war impacts.
- Financial markets were volatile as concerns over the coronavirus intensified, with the World Health Organisation declaring it as public health emergency, and Russia closing its land border with China. The number of confimed cases eclipsed 8,100 – the global total affected by SARS in 2003. The integration of China in global supply chains, together with the fast spread of the virus globally, suggest that the epidemic could have a larger and more persistent effect on the global economy and markets than SARS.