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US inflation still low at end-2016, our forecast unchanged for 2017

Core PCE inflation in the US settled at 1.7% y-o-y in December, in line with consensus and exactly the same rate as in February 2016. We continue to believe that PCE core inflation will pick up only modestly in 2017, ending the year at around 2.1%. Following a significant pick-up between October 2015 and February […]

Euro area: latest figures raise our 2017 GDP forecast to 1.5%

Euro area real GDP expanded by 0.5% q-o-q in the fourth quarter, marking an acceleration from Q3’s 0.4% gain. The euro area economy grew at an annual average of 1.7% in 2016, compared with 1.9% in 2015. Last year was the first time since 2008 that real GDP growth in the euro area was above […]

Inflation and the ECB (part 1): the four criteria

Although euro area headline inflation jumped to 1.8% in January, the closest it has been to the ECB’s 2% target since Q1 2013, core inflation remained low at 0.9%. We continue to expect the ECB to wait until September before it announces a tapering of its asset purchases in 2018. A “sustained adjustment in inflation” […]

Euro area: strong rebound in bank lending

Euro area credit flows to non-financial corporations increased again in December, by EUR13 bn in adjusted terms. The large rebound in long-terms loans, in particular, bodes well for business investment spending. With loans to households still expanding at a healthy pace (+EUR9 bn in December), the annual growth rate of bank credit to the non-financial […]

US GDP picked up in 2H 2016; outlook for 2017 unchanged

US GDP growth decelerated from 3.5% in Q3 to 1.9% quarter-on-quarter annualised in Q4, below consensus expectations of 2.2%. However, this soft reading was mainly due to a reversal of the surge in soybean exports in the previous quarter, while growth in final domestic demand picked up from 2.1% in Q3 to 2.5% in Q4. […]

US biopharma set to rebound

Biopharma suffered a poor 2016 after years of strong performance. Political rhetoric was the main source of volatility, but the sector also suffered from poor execution. We think 2016 helped reset expectations and created an attractive opportunity to build long-term positions. Uncertainty will linger in the first half of 2017, but overall we expect a […]

Business activity, job creation and price pressures remain strong in euro area

The euro area composite PMI eased slightly to 54.3 in January, from 54.4 in December. Importantly, the breakdown by subindices showed that employment rose at its fastest rate since 2008, which bodes well for domestic demand. Overall, PMI indices look consistent with real euro area GDP growth of 0.5% q-o-q in Q1, slightly above our […]

China: near-term prospects good, mid term less clear

Chinese GDP grew by 6.8% in Q4 2016 and by 6.7% in 2016 as a whole, in line with our forecast. The pick-up in fixed-asset investment in the second half was probably the key contributor to this solid performance. The likelihood of a sharp deceleration in fixed-asset investment in Q1 2017 has declined greatly. Growth […]

Patient ECB to wait for underlying inflation to improve

At today’s press conference following the GC meeting, ECB President Mario Draghi’s message was one of continuity, very much as expected. The stronger momentum in economic activity and headline inflation, he suggested, was no reason to declare victory as long as downside risks remain. Importantly, the ECB’s statement suggests that the GC will look through any […]

First tightening of euro area credit standards in three years

Credit standards on loans to euro area enterprises tightened in Q4 2016 for the first time in three years. The move was essentially driven by developments in the Netherlands. Demand for credit continued to rise across all categories of loans, once again driven by generally low interest rates and M&A activity. Looking ahead, banks expect […]

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