- The US labour market continues to tighten but the Fed is concerned that a cycle of perpetually low inflation expectations could reduce monetary policy flexibility.
- Sentiment in Europe continues to deteriorate, with inflation softening in April and the manufacturing sector in contraction.
- Despite zero growth in the CPI for the March quarter, the RBA opted to hold the cash rate at 1.50%, possibly preferring to remain on the sidelines during the election campaign.
- The UK has negotiated a Brexit reprieve, moving the deadline back to 31 October, meaning it will participate in European Parliament elections on 23 May.
- China’s March quarter GDP growth exceeded expectations, while investment spending has stabilised after falling through 2018.
The global growth outlook is weakening, although with central banks putting rates on hold there is a chance the current economic expansion may experience an extended late cycle phase. China’s economy is being supported by stimulus measures, while easing trade tensions between the US and China have improved market sentiment, although this may change with the resumption of talks in May.
The Australian economy entered an election campaign in a relatively vulnerable position, with growth slowing, household debt levels high and considerable uncertainty regarding the outlook for housing and, in turn, consumer spending. Not everything is negative, as evidenced by the low unemployment rate, strong exports, and improving business investment.
With the Fed now on hold and growth slowing back to a more sustainable pace there is an increased likelihood that this expansion can continue. The current economic expansion is now 118 months old and will reach the post-war record of 120 months mid-year.
The IHS Markit Eurozone Composite PMI suggests modest GDP growth of around 0.2% for the March quarter, but the manufacturing sector continues to contract, with conditions in Germany deteriorating the most. If there was any good news from April’s data it came from Greece’s manufacturing economy, which enjoyed its strongest improvement in nearly 19 years.
The Chinese economy seems to be responding to the stimulus put in place over the past 12 months. The first quarter GDP growth rate recorded 6.4%, in line with the previous quarter and beating expectations in the process. April PMI figures showed the manufacturing industry holding above the critical 50 level.
The Nikkei Composite Output Index fell to a 30-month low in March as solid growth in the services sector was offset by manufacturing’s worst quarter since June 2016. Services saw good domestic demand but disappointing overseas orders.