Overseas Headlines – February 27,2018

February 27,2018

United States:

Fed’s Quarles Raises Hope for Faster, Sustained U.S. Growth Pace

Federal Reserve Governor Randal Quarles offered an optimistic view of the U.S. economy, suggesting it may be on the cusp of a sustained period of faster growth and reaffirming his support for “gradual” interest-rate increases. “Some of the factors that have been holding back growth in recent years could shift, moving the economy onto a higher growth trajectory,” Quarles said, according to the prepared text of a speech he’ll deliver Monday in Washington. He added, however, “I currently see this shift more as a clear possibility than an unarguable reality.” Quarles drew encouragement from increased capital expenditures by businesses, and said tax cuts enacted in December “will also likely boost investment and increase the capital stock.” He hedged his optimism by saying productivity growth continued to be lacklustre and also highlighted the longer-term risk posed by a growing federal debt. Quarles’ remarks come a day before the Fed’s new chairman, Jerome Powell, is scheduled to testify before lawmakers on the state of the U.S. economy. Powell is likely to face questions about his own views on whether a recent upturn in growth is likely to persist and what the Fed’s response will be. Quarles, who joined the Fed in October, made clear he thought a sustained period of higher growth might require higher interest rates, but not severe as to halt the expansion. “This higher policy path would be motivated by sustained stronger growth and improved economic conditions, not a greater desire to slow the economy,” he said.



Euro-Area Economic Confidence Declines for a Second Month

Euro-area economic confidence slipped in February, the latest number to show momentum in in the region is taking a breather after the best year in a decade. The European Commission’s index of sentiment fell to 114.1 from 114.9, broadly in line with expectations. That’s the second consecutive monthly decline after the index touched a 17-year high in December. The business climate measure also declined, falling to the lowest since October. The report continues a run of disappointing numbers from the 19-nation currency bloc. Business confidence in Germany fell the most in more than five years in February, while the euro-region Purchasing Managers Indexes showed manufacturing and services activity weakened more than forecast. The commission report showed that economic sentiment declined in Germany, France and Spain, though it rose in Italy, suggesting the election this weekend hasn’t put a damper on confidence. With most Eurozone indicators still at high levels, European Central Bank President Mario Draghi is maintaining an upbeat view, telling European lawmakers on Monday that the economy is expanding robustly. Expansion of 2.3 percent is forecast for this year, not far from the 2.5 percent pace reached in 2017, and strong global growth is boosting demand. Among the companies benefiting is Siemens AG, which recently reported a 14 percent surge in orders.



China’s Economy Holds Up in February

The solid start to the year for China’s economy remains intact amid distortions accompanying the long spring festival holiday, the earliest indicators for February show. Smaller enterprises have a more upbeat outlook, financial experts are increasingly optimistic and sentiment in the steel industry is recovering. Still, the week-long Lunar New Year holiday that ended Feb. 21 did disrupt some economic activity, as sales managers saw a slight slowdown and satellite imagery indicates that manufacturing momentum has eased. Stable growth gives President Xi Jinping additional room to manoeuvre as he convenes top deputies this month to chart polices for the future, including a term-limit repeal that would allow him to rule indefinitely. The Communist Party announced Sunday it’s set to scrap those constitutional limits this week, just before the National People’s Congress begins March 5. Economists surveyed by Bloomberg project the expansion will slow to 6.5 percent this year from last year’s 6.9 percent. The official factory gauge has maintained momentum this month with a reading just shy of January’s level, according to economists surveyed by Bloomberg ahead of the data due for release Wednesday.