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Global economy: strong PMIs mask inflation worries

Friday, March 03, 2017 - 01:46

Euro zone business growth is confirmed at its fastest in nearly six years, and even Japan's moribund price inflation is positive for the first time in a year. But as David Pollard reports, not all is rosy in the global garden: UK services are starting to feel a consumer slowdown and German retail sales show a surprise dip.

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On the face of it, it was a good news day for the euro zone. Data already signalling a near six-year high in factory activity. And now the latest PMIs saying the same about services - the combined reading six points clear of the 50 mark that denotes growth. But drill down deeper, and there are concerns. SOUNDBITE (English) IG SENIOR ANALYST, CHRIS BEAUCHAMP, SAYING: "We might be on the cusp of fresh optimism pushing through into the broader economy. But nonetheless, there are clear signs that a lot of the inflationary pressures that are coming through from energy and that will start to weigh on key parts like manufacturing, which could potentially derail some of the growth we've had." There was other good news .... Japanese inflation moving into positive territory for the first time in a year in January - with a tiny 0.1 percent rise. But household spending has seen nearly a year of declines - it slumped 1.2 per cent. Elsewhere, Chinese services slipped to a 4-month low ... Euro zone retail sales unexpectedly dropped for a third straight month ... And UK services also cooled to a five-month low. SOUNDBITE (English) IG SENIOR ANALYST, CHRIS BEAUCHAMP, SAYING: "It is the big worry that a lot of the good news is in the price, if you like, where the UK economy is concerned. And certainly the reaction in the pound against the dollar where you've got weakness in the PMI reading against all this talk of about a potential Fed rate hike in March really puts further pressure. And that return of the pound back down towards 1.22 suggests that you'll have a heightening of inflation and heightening of inflation concerns." And with more inflation comes the risk of lower consumer spending and confidence. The dilemma that's increasingly imposing itself on politicians and central bankers in 2017.

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Global economy: strong PMIs mask inflation worries

Friday, March 03, 2017 - 01:46