Weaker Manufacturing Will Pressure Central Banks

The global economy ended 2014 in a fragile state as factories struggled to maintain growth across Europe and Asia, business surveys showed, adding to pressure on central banks to implement more stimulus.

Ebbing price pressures across the continents offers room for the People’s Bank of China and the European Central Bank to do more to drive up inflation and support growth.

“Growth really does appear to be stalling based on these indicators so certainly the pressure is on, although we are less worried about China,” said James Knightley, senior global economist at ING.

 
On Thursday, ECB President Mario Draghi fanned expectations he would take bolder steps this month, saying the central bank stood ready to respond to the risk of deflation. Consumer price data for the euro zone due on Jan. 7 is widely expected to show a fall in annual terms. ECONEZ

“With inflation set to fall sharply further, given what is happening to energy costs, those concerns that Draghi highlighted suggests we are going to get quantitative easing,” Knightley said.

The risk of a deflationary spiral, alongside a stagnating euro economy, will push the ECB to buy sovereign debt early in 2015, a Reuters poll showed last month. [ECILT/EU]

The ECB council meets on Jan. 22 and markets are wagering heavily it will finally decide to start buying sovereign debt, a major reason the euro hit 4-1/2 year lows on Friday. [MKTS/GLOB]

Euro zone manufacturing concluded last year on a subdued note as output, new orders and employment all recorded sluggish growth. Also of concern to policymakers, activity was weak in Germany, Europe’s largest economy, while the downturn also deepened in France, the euro bloc’s second-biggest.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza