The U.S. Commerce Department published its first look at the economy’s performance in the 4th quarter of 2015 last Friday. The economy experienced an economic slowdown from the 3rd Quarter’s estimate of 2% growth now down to 0.7%. The report shows that amid a slowdown for consumer spending, business investment has decreased due to rapidly declining oil prices. Through the first 11 months of 2015, the U.S trade deficit also widened 5.5% compared with the same period a year earlier. Due to a strong U.S. dollar, exports fell by 4.6%.
The Institute for Supply Management released its January manufacturing index on Monday. This acts as a gauge of U.S factory activity. It reveals the tanking effects of a strong U.S. dollar and slumping commodity prices that have severely impacted the market for manufactured goods, especially mining equipment. As manufacturing slows, the service sector has continued to expand. Wednesday, the ISM and PMI measures demonstrated they are less vulnerable to international headwinds.
Part of a wider IMF strategy to resolve sovereign debt crises, the IMF Executive Board announced that it has approved an important reform that applies to the institution’s policy on lending to countries that request large-scale financing. The reform includes the removal of the “systemic exemption” created in 2010 for the purpose of promoting more efficient resolution of sovereign debt problems. Read more about the evolution and impact of “system risk” in IMF lending here.
After disappointing growth and downward revision to previous quarters at the end of 2015 by the Office of National Statistics (ONS), the BoE will cut its growth and inflation forecasts. Interest rates are expected to stay at a record low for the long run amid rising global risks. Analysts believe the Bank will not raise interest rates from their current level of 0.5pc until the second half of 2017.
Weak China manufacturing data (PMI) showing deterioration for a sixth straight month choked off a rally in emerging-market stocks and currencies from last week. This has stoked concern that the slowdown in its economy will spread to other developing nations. Currencies that experienced declines included the Russian ruble, South Africa’s rand, and India’s equity benchmark. Most developing-nation currencies weakened against the dollar on Monday driven by data releases and declining commodity prices.