Monday, June 25 2018 | ASIA TODAY INTERNATIONAL - Reporting the Business that Matters in Asia
Updated: 6 hours 9 min ago
As the calendar turned to May, the economic expansion became the second longest in modern history. If trends continue, by July 2019 it will become the longest ever, an event that under current economic conditions has a high likelihood of materializing.
The central bank recently announced a number of changes in its communication policy which in my opinion constitute a very significant step forward in terms of transparency.
Following a good 2017, the global economic outlook for this year and next remain positive, but there is also a long list of uncertainties, to which has recently, and forcefully, been added the threat of escalating protectionism.
Structural reforms since they usually involve a transfer of income that leads to the groups negatively affected mobilising to prevent them. Governments then have to decide how to manage that pain and when: with a large number of measures concentrated into a short time-span, perhaps taking advantage of the mandate afforded by a crisis.
Latin America maintains its recovery amidst external turbulence. Growth will increase from 1.2% in 2017, to 1.4% in 2018 and 2.5% in 2019. The main external risks centre on protectionism and on China. On the domestic front, political noise and the possible delay in public and private investment is an upside risk in a number of countries.
On the backdrop of a solid growth in Q1, the China Vulnerability Sentiment Index broadly remained stable driven by SOE and Shadow banking Vunerability index, despite the new emerging risk of Sino-US trade tensions. However, Housing Bubble and Exchange Rate Vulnerability index deteriorated as property prices remained resilient as well as RMB's recent appreciation.
The low level of unemployment and the growth outlook in the US allowed remittances to continue to increase. In real terms, remittances continue to decline due to the combined effect of the CPI and the relative stability of the exchange rate. Colima (21.8%) and Baja California Sur (17.3%) were the states with the biggest increases in remittances.
Highlights: ECB released its fifth Macroprudential Bulletin. ECB also launched EU financial integration report. ECB and BoE created a working group for Brexit risks. BdE published their biannual financial stability report. Finally, on the U.S. the OCC adopted rule to increase appraisal threshold for commercial real estate transactions.
Consumer prices increased 1.87% (mom) in April, even higher than our above consensus estimate (1.7% vs. 1.5%).Annual consumer inflation jumped to 10.85% from 10.23% with a more rapid pick-up in core prices than our expectation. We maintain our year-end inflation estimate at 10.5%, though exchange rate volatility and loose policies could pose upside risks.
Banco de México (Mexico’s central bank, Banxico), published its Monetary Aggregates (MAs) based on the 2018 methodology. These new indicators replace those that the central bank published on a monthly basis until December 2017, based on the 199 methodology.
The data remain consistent with the BBVA baseline expectation of three additional Fed funds rate increases in 2018 and two in 2019. The yield curve slope between the 2-year and 10-year Treasury notes flattened, fluctuating between 41 and 54 basis points. The baseline remains for a gradual increase in long-term yields.
2018 started with the expectation that this time around the world economy really would be able to chalk up a second consecutive year of solid growth and successfully navigate through two of its main hazards: US monetary normalisation and China’s slowdown.
Highlights: BCBS issues progress report on the adoption of the Basel framework. EBA consults on STS and NPE guidelines. ESRB publishes report on macroprudential policy. BdE consults on public and confidential financial information. Spanish Ministry of Economy issues report on the future of the EMU. BoE implements reforms of interest rate benchmark (SONIA).
Global Investment Funds still attracted sizable flows in 1Q18 while. Recently, some moderation has already occurred with the bulk of flows retrenchment concentrated in developed markets. The financial outlook is certainly challenging for Emerging Markets as volatility and interest rates “normalize” in a context of high debt levels.