ECONOMIC OVERVIEW
Are they losing steam?
March 2018
After the highs achieved in January 2018, commodity markets dipped considerably at the start of February, after rebounding back to the same levels seen at the end of 2017. Donald Trump politics aside, the US and Germany posted mixed results, while China looks to make up some ground after Chinese New Year celebrations. The near-term outlook is positive with accelerating growth momentum to continue to 2020, reflecting notable results in Europe, Asia and the US.

Chinese factory activity continued to cool moving into the middle of the March Quarter. Official PMI data saw a third consecutive month of declining growth with January reporting 51.3, the lowest reading since May 2017. This is on the back of moderating output and new orders, while business confidence hit its lowest level in eight months. Caixin PMI data remained unchanged from December as new orders continue to rise while output advanced the most in 13 months. Activity is forecast to continue its advance in the March Quarter with some post-Chinese New Year rebound expected.

Germany’s economic sentiment index was slightly down in February despite expectations of a more severe fall. The current economic situation index, a gauge of investor sentiment, was down but only relative to January’s all-time high. Official PMI data softened in February, with expectations of further moderation heading into March on the back of weak growth in new orders and job creation. Despite contracting in December 2017, the trend in industrial output is pointing upwards. The recent formation of a Grand Coalition, led by Chancellor Angela Merkel, should strengthen fiscal support for the country with the German economy expected to improve in the first half of 2018.

US industrial production reported a second month of lacklustre results, unexpectedly contracting in January. The March Quarter is looking to rebound with official PMI data reporting the strongest expansion in manufacturing since October 2014, rising to 55.9 in February. This was on the back of a steep rise in new order volumes attributed to both domestic demand and exports. A rise in job creation has also contributed to the PMI, as business conditions continue to improve, and could remain positive over the March Quarter.

2018 Indian manufacturing outlook is also positive. The sector reported the second highest growth in industrial output for 2017 in December. PMI data in January remained upbeat despite moderating output and new orders. Brazil reported an eighth consecutive month of annual growth in industrial output at the end of 2017. PMI data marked a sixth consecutive month of improvement with businesses preserving upbeat projections for the March Quarter of 2018. Japan posted mixed results with official PMI data slightly down in February as output and new orders moderate, contrasting with job growth reaching an 11-year high.