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World Economy - March 2016

Source: OPEC_RP160305 3/13/2016, Location: Europe

Global economic growth remains moderate and uneven. Numerous challenges in emerging and developing economies, as well as some weakness in OECD economies, have led to a downward revision of the 2016 GDP growth forecast to 3.1% from 3.2% in the previous assessment. This is only slightly higher than the estimated growth of 2.9% in 2015. In the OECD, the US seems to be better positioned to weather global economic challenges, while the growth forecasts for both Japan and the Euro-zone have been lowered. This is not only because the growth dynamic for both has slowed down since the beginning of the year, but also in consideration of the numerous challenges that remain, which could further dent this year’s growth. India and China continue to expand at a considerable rate. However, in China some areas of the economy seem to be affected by the global economic slowdown, particularly exports. Brazil and Russia are now forecast to move further into recession this year, amid declining commodity prices and a variety of domestic issues. Despite these most recent adjustments, the risk to global economic growth remains skewed towards the downside. Many country-specific economic challenges remain and geopolitical issues – and their potential to spill over into the real economy – may add to this risk. The upside potential of the current global GDP growth forecast is limited, but could come from the US, India and the Euro-zone. Also, central bank policies will continue to constitute an influential factor amid lower global inflation.

OECD
OECD Americas
US
The relatively weak performance of the 4Q15 US GDP has been confirmed in its second estimate. While it has been revised up slightly to a seasonally adjusted annualised rate (SAAR) of 1.0%, it underscores that some weak spots are currently weighing on the economy, despite relatively robust private household consumption. The decline in investments, particularly in the energy sector, is one important factor, while high inventories leading to less production, is another. Personal consumption expenditures remained healthy at 2.0% q-o-q SAAR. This is the biggest bright spot in the US economy and the most recent improvements in the US labour market are supporting this positive trend. It remains to be seen how much of the negative counterbalancing factors – such as fewer investments, relatively high inventories and a strong US dollar – will weigh on growth this year.

Again, industrial production was weak on a yearly base in January, registering a declining rate of 0.7% y-o-y. Within this number, manufacturing held up relatively well at 1.2% y-o-y, improving from the past two months. But mining, including oil sectorrelated output, again fell considerably, dropping 9.8% y-o-y. This, however, was better than the December decline of 11.3% y-o-y. The output of electricity and gas utilities also declined, falling by 2.8% y-o-y.

The important driver in the US economy in past quarters, however, was not the industrial sector, but the services sector, which has seemed to gradually slow down. This has been the engine of job growth in the past and its obvious slowdown, in combination with the weakness of the industrial sector, will need close monitoring. This current uncertainty in near-term output trends, in combination with the ongoing challenges in emerging and developing economies, may keep the US Federal Reserve (Fed) from further lifting interest rates at its upcoming meeting. This expectation has already led to some weakness of the US dollar in February, which, in the short-run, could turn out to be beneficial for US exports. Exports declined by 2.7% q-o-q SAAR in the 4Q15 and net exports impacted GDP growth negatively by 0.3 percentage points (pp) in the same period.

Retail sales increased by a healthy 3.4% y-o-y in January, picking up from an already solid rise of 2.4% y-o-y in December. Support from the continuously improving situation in the labour market remains intact. The unemployment rate remained below 5.0% in January, registering 4.9% for the second consecutive month. Also, non-farm payroll additions grew by a considerable 242,000, after an upwardly revised December figure of 172,000. Despite these improving measures in the labour market, consumer confidence fell in February. The Conference Board’s Consumer Confidence Index retraced its recent climb to 92.2 from 97.8, the lowest level since last July.

Some ongoing weakness is signalled also by the Purchasing Manager’s Index (PMI) for the manufacturing sector, as provided by the Institute of Supply Management (ISM). The ISM remained below the growth-indicating level of 50 for the fifth consecutive month in February, standing now at 49.5. However, this was better than the 48.2 seen in January. Importantly, the non-manufacturing sector index fell again in February, albeit only very slightly, to 53.4 from 53.5 in January. While this is still a healthy level, it is the lowest in almost a year.

The GDP growth forecast for the current year remains unchanged at 2.2%, given that most of the ongoing slowing growth dynamic is already anticipated. This growth level is slightly lower than the last estimate for 2015 growth of 2.4%. It remains to be seen if the weakening growth pattern of the last quarter of 2015 will continue. Some lead indicators point at moderation in growth, compared to last year’s level. However, the upside is that there may be positive impacts from ongoing improvements in the labour market. This, in combination with the support from lower oil prices, may lead to some upside in GDP growth of the US economy.

Canada
While the Canadian economy remains in a rather weak spot, it seems to have recovered somewhat. After being affected by relatively sluggish domestic demand amid falling oil prices and a decline in investments in the energy sector, some improvements are becoming apparent. Exports have improved by 7.3% y-o-y in January, the strongest appreciation in more than a year. This was mainly supported by Canada’s industrial sector. However, the latest available number for industrial production from December still points at a challenging environment, with production declining by 1.3% y-o-y. Positively, retail trade improved by 2.6% y-o-y in December, after registering 3.0% y-o-y in November. Despite some positive elements in the economy, the weak trend of the PMI for manufacturing continues. In February, it reached 49.4, which is still below the growth-indicating level of 50 and almost unchanged from January. Given these indications, the GDP forecast for 2016 remains clearly above the estimated GDP growth of 1.1% in 2015, but has been slightly lowered to 1.5% from 1.6%.

OECD Asia Pacific
Japan
The economy in Japan is still characterised by only very moderate annual growth. After the latest data release of 2015 GDP numbers, it has become apparent that the economy still struggles to move beyond a very low-growth/no-growth level. This is despite large stimulus efforts – both fiscal and monetary – over the past several years which, so far, seem to not have been as effective as originally envisaged. The weakness in the country’s external trade and the continued weak dynamic of domestic consumption, in combination with still considerably high sovereign debt levels, pose multiple challenges to the economy. Domestic demand is again weakening amid reemerging deflation and declining real income. So far, a large degree of support for domestic economic activities came from the services sector. However, it remains to be seen whether, amid the challenges that lie ahead, this will continue. At the same time, the ongoing slowdown in the economy of neighbouring China continues to have an effect on Japanese exports.

Moreover, while the Bank of Japan (BoJ) reiterated that it aims to achieve an inflation rate of 2%, additional monetary easing seems to have become less effective, given that consumer prices fell again in January. This area will need careful monitoring since the BoJ has already pushed down interest rates into a negative territory of -0.1%. This poses the question of which additional measures may be introduce by the BoJ. While their interest rate policy has added some credibility to its inflation-fighting measures, consumer prices fell again in January by 0.2%. This was a significant decline compared to the slightly positive numbers seen in December and November. Excluding the two volatile groups of energy and food, the country’s overall inflation figures have performed better, rising 0.7% in January. But this, too, is lower than the 0.9% level seen in November and the 0.8% of December. An encouraging sign came from the January data for real income, which, despite having declined considerably in 2015, suggests that this trend may turn in 2016. Also, given the extremely tight labour market, which had an unemployment rate of only 3.2% in January, it seems likely that some support will come from this area in 2016. Average monthly earnings increased by 1.2% y-o-y in January, compared with a yearly decline of 1.5% in 2015.

Japanese exports have slowed down again significantly. They declined for the fourth consecutive month in January, falling by 12.9% y-o-y, compared to an already significant decline of 8.0% y-o-y on a non-seasonally adjusted base in December. Also, industrial production fell again in January by 2.3% y-o-y, following a decline of 2.5% y-o-y in December. Domestic demand has remained weak in the past months, as retail sales remained in negative territory in January, when they declined by 0.1% y-o-y. This, however, was better than the larger decline of 1.1% y-o-y seen in December.

Amid signals in past months of a slowdown in the Japanese economy as a whole, the latest PMI numbers, provided by Markit, point at a slowdown in manufacturing activity. February’s manufacturing PMI fell and now stands at 50.1, only slightly above the growth-indicating level of 50. The momentum of the important services sector also suggests a slowdown in activity. The services sector PMI fell to 51.2, compared to 52.4 in January.

After relatively sluggish growth of 0.4% in 2015, the growth forecast for 2016 has been revised down. This has also taken into consideration the slowing growth trend from the 4Q15, and is based on the assumption of a continued drag on the economy stemming from anticipated weak domestic demand and ongoing challenges from exports. Taking these assumptions into consideration, the 2016 growth forecast has been revised down to 0.7%, from 0.9% previously.

South Korea
While the growth level of South Korea’s economy remains relatively healthy, it continues to face challenges from the recent global slowdown. Domestic consumption is holding up well, but exports are in considerable decline. After having turned positive in September 2015, exports have continued their considerable decline in February, falling 2.7% y-o-y, after having declined by 10.2% y-o-y in January. The latest revision in industrial output data confirms this weakness in the economy. Industrial production fell by 0.5% in January and by 2.3% y-o-y in December. This weakness has been also confirmed by the latest PMI number for February, which fell to 48.7 from 49.5 a month earlier. This slowing dynamic has led to a downward revision of this year’s growth forecast to 2.7% from 2.8% in the past month. This is slightly higher than the estimated growth of 2.6% in 2015.

OECD Europe
Euro-zone
While the Euro-zone enjoyed a solid cyclical recovery in 2015, signs have appeared that the momentum may be slowing down. In this respect, positive data from Germany might again somewhat counterbalance the relatively weaker performance of the economies of France and Italy. However, the underlying fundamentals in some areas of the economy point at some other challenges ahead. Not only is the labour market still weak and industrial production moving back into negative territory, but there is still a weak banking system, the potential impact of the upcoming referendum on the exit of the UK from the European Union and the still unresolved sovereign debt issues in Greece. Some support may come from the weak euro, which has generated a more competitive export situation on global markets, particularly for the two largest Eurozone exporters, Germany and France. Moreover, additional monetary stimulus from the European Central Bank (ECB) may provide further support for economic growth in the Euro-zone.

The latest industrial production numbers show a declining trend, reaching the lowest level in more than a year, with December’s growth contracting by 0.3% y-o-y, compared to growth of 1.4% in November. The momentum of most of the economic sectors that contribute to industrial production is slowing down or has turned negative. Manufacturing growth was reported at only 0.3% y-o-y, compared to 1.8% in November. Also, mining and quarrying has declined considerably, amid falling commodity prices in the past months. In December, the mining and quarrying sector declined by 20.5% y-o-y, the same level of decline as in November. Moreover, construction turned negative again as well, falling 0.8% y-o-y. Since 2009, the sector has been on a decline for most of the time.

Retail sales performed well, but fell from their higher levels in January. Consumers increased spending in the retail sector by 2.0% in January, almost the same level as in December. This, however, compares to 2.5% on average in 2015. Some slowdown in the coming months is expected as growing uncertainties about the development of the Euro-zone’s economy, in combination with ongoing challenges in the labour market, may dent private household consumption. This has been reflected in the latest consumer confidence surveys. The unemployment rate stood at 10.3% in January, compared to 10.4% in December.

Despite the latest round of ECB stimulus, inflation has turned negative again. It declined by 0.2% in February, according to the first flash estimate. The lessening effectiveness of ECB stimulus has also become increasingly apparent in the latest figures of credit supply. An encouraging sign has been the expansion of private sector credit since the beginning of 2015; but recently the expansion has tapered off. This is important to note since the banking sector is the most important source of financing for small- and medium-sized enterprises in the Euro-zone, the backbone of the industrial sector. January’s growth stood at 0.3%, which was again lower than the December figure of 0.8% y-o-y and the healthier level of 2.1% y-o-y in November. This may also be the outcome of the ongoing challenges in the banking system, with the volatile developments in the credit supply seen in the past months pointing at some continuing fragility.

The softening situation is also reflected in the latest PMI indicators. The manufacturing PMI for January held up well, but fell back to 51.2 in February from 52.3 in January. The services PMI declined only slightly to 53.3 from 53.6 in January.

While the recovery in the Euro-zone is ongoing, several uncertainties remain. It currently seems that the growth dynamic from the past year is slowing down somewhat. Moreover, the challenges of an ongoing weak banking system, as well as continuing issues in Greek’s sovereign debt, the likelihood of increasing border controls due to the refugee crisis and, finally, the potential impact of an exit of the UK from the European Union are issues that have the potential to dent this recovery. It remains to be seen how the Euro-zone will deal with these issues – and also how the Euro-zone’s economy will able to digest the slightly slowing trend. Considering the currently slowing dynamic in economic activity, the growth forecast for 2016 has been lowered to 1.4% from 1.5%. This is only slightly lower than the estimated growth of 1.5% in the past year.

UK
The UK economy continues on a relatively healthy growth trajectory, while some softening in the economy is becoming obvious. Industrial production turned negative in December. Lead indicators also have pointed at some cooling down and trade has further declined at the end of last year. In addition, industrial production growth turned negative in December, declining by 0.3% y-o-y, the first negative number in more than two years. A major contributor was the manufacturing sector, where growth declined by 1.8% y-o-y. Although the PMI numbers for the past months all indicated growth in the sector, the trend of a slowdown has become quite apparent. The latest PMI number for the manufacturing sector was 50.8, the lowest since May 2013. Also, the services sector PMI fell considerably from 55.6 to 52.7. On a positive note, the headline series of retail sales in January grew by a significant 5.3% y-o-y, compared to 2.3% y-o-y in December. Amid the mentioned slowdown in the economy, the 2016 GDP growth forecast has been revised down slightly to 2.1% from 2.3%, just below the estimated growth of 2.2% in 2015.

Emerging and Developing Economies
The contraction in Brazil’s GDP worsened in 4Q15 to 5.9% y-o-y, bringing shrinkage for the entire year to 3.8%, according to the national statistics agency IBGE. Furthermore, the downturn in the economy was manifested in the decline of the country’s composite output index, which reached a record low in February. The manufacturing sector posted deeper job cuts last month on weak new orders and rising input costs. Considering the ongoing downward trend in the economy, Brazil is expected to remain in recession this year with the GDP forecast to shrink by 2.8%. In Russia, the monthly GDP y-o-y percentage change published by the Ministry of Economic Development was 2.5% lower in January. While the services PMI reading in February brought some hope of a recovery in the services sector, the manufacturing sector remained in contraction territory as suggested by the respective PMI readings. Despite the fact that the economy of Russia sent a few positive signals in January and February, the overwhelming trend still points to the downside. There are still plenty of challenges to deal with before seeing reliable economic growth. GDP is thus forecast to contract by 1.1% in 2015, after the 3.7% decline in 2014.

India’s economy expanded by 7.6% y-o-y in the last three months of 2015. This was higher than in the previous quarter. GDP growth in 2015 is likely to expand by 7.3% compared to the growth rate of 7.0% in 2014. India’s second full-year budget was a positive surprise, with authorities targeting fiscal consolidation in line with the fiscal road map, and given measures being taken to boost the struggling rural economy without losing the focus on infrastructure investment. India's industrial output contracted for a second successive month in December 2015.

China’s economy is slowing, with growth easing to a 25-year low of 6.9% in 2015. China lowered nearly every quantitative macroeconomic target, with 2016 GDP growth targeted at 6.5-7.0%. The latest “work report” also makes clear that the government is expecting a challenging year ahead, and is adjusting its targets and the intensity of its policy measures. China's exports registered their biggest drop in more than five years as weak global demand continues to undercut growth momentum. Also, the PBoC continued its easing of monetary policy. In spite of the authorities’ stance on the yuan, they want to keep it “relatively stable and strong”. It seems that two more interest rate cuts may be considered once sentiment on the currency improves.

Brazil
GDP shrank by 3.8% y-o-y in 2015, according to the national statistics agency IBGE. The contraction accelerated in the 4Q15 to 5.9% y-o-y from the 4.5% decline seen in the previous quarter, signalling the sharpest contraction in data history since 1991. This also marks the seventh consecutive drop in GDP. The economic activity indicator published by the central bank was in contraction for the 11th consecutive month in December.

The central bank kept its benchmark interest rate on hold last month at 14.25%, its highest rate since July 2006, while inflation (national CPI) continued to post doubledigit readings, recording 11.3% y-o-y in January, its highest since November 2003. The consumer confidence index continued to fluctuate at historically low readings, registering 70.4 points in February. The unemployment rate increased to 7.6% y-o-y in January, up from 6.9% a month earlier.

Furthermore, the downturn in the economy was manifest in the decline of the country’s composite output index, which reached a record low in February. The services PMI survey highlighted the spare capacity in the sector on the back of a decrease in new work. The index was down to 36.9 in February from 44.4 in January. Similarly, the manufacturing sector posted deeper job cuts last month on weak new orders and rising input costs. The respective PMI fell to 44.5 in February from 47.4 in January. Considering the ongoing downward trend in the economy, Brazil is expected to remain in recession this year with the GDP forecast to shrink by 2.8%.

Russia
GDP declined 3.7% y-o-y in 2015. The monthly GDP y-o-y percentage change published by the Ministry of Economic Development was 2.5% lower in January. The key interest rate stood at 11.0% in February for the seventh month in a row, while inflation registered a 9.8% y-o-y increase for the first time since December 2014 on slower increases in the prices of food, housing and transportation. The ruble depreciated by 1.4% m-o-m in February, following a 9.5% depreciation in January. The unemployment rate remained unchanged at 5.8% y-o-y in January.

Retail sales dropped by 7.3% y-o-y in January, signalling the first single-digit decline in five months. However, it is much higher than the 3.6% decrease in retail sales in January 2014. The services PMI reading in February brought some hope of a recovery in the services sector. The survey showed the first rise in the sector in five months, with the index returning to growth territory at 50.9, up from 47.1 in January. The pace of growth in new business was the fastest since July 2015. In a closely related development, the manufacturing sector remained in contraction territory in February as suggested by its respective PMI. The survey showed acceleration in new export orders at the sharpest rate in 19 months, while production remained largely unchanged. The index posted 49.3 last month, down from 49.8 the previous month.

Data on industrial production showed a deceleration of 2.7% y-o-y in January, marking the 12th consecutive month of contraction in industrial output. Despite that, the economy of Russia sent few positive signals in January and February, with the overwhelming trend still pointing to the downside. There are still plenty of challenges to deal with before seeing reliable economic growth.

GDP is forecast to contract 1.1% in 2015, after the 3.7% decline in 2014.

India
The Indian economy expanded by 7.6% y-o-y in 4Q15, higher than the previous quarter. GDP growth in 2015 is likely to expand by 7.3%, compared to the growth rate of 7.0% in 2014. The government's advance estimate of 7.6% growth for the year ending March 2016 will be challenging to meet, as this implies that quarterly growth in the January-March period will reach 7.8%. Given the forward-looking indicators of investment and production, full-year growth is unlikely to exceed 7.5%. India’s second full-year budget was a positive surprise, with authorities targeting fiscal consolidation, in line with the fiscal road map and given measures to boost the struggling rural economy without losing the focus on infrastructure investment. The government decided to keep the budget deficit target for FY16 at 3.5% of GDP, while for FY15 it amounted 3.9%. Despite some apparent trade-offs, India's second full-year budget is a well-rounded offering that balances the immediate need to support nearterm growth and secure sufficient political capital for further reforms, with a continued focus on longer-term reforms. Private consumption will receive an additional boost from the government's social spending and should gain further momentum as rural consumers catch up with fast-growing urban demand. From an investment perspective, public spending will continue to outpace that of the private sector, while the latter will struggle to gain momentum.

CPI went up 5.8% y-o-y in January of 2016, higher than the 5.7% rate seen in December 2015 and accelerating for the sixth straight month. It is the highest figure since September 2014 and above market expectations of 5.4%. Food inflation increased to 6.7% from 6.3% a month earlier, also the highest in 17 months. The wholesale price index (WPI) decreased to -0.84% y-o-y in January 2016 from -0.72% in the previous month.

India's merchandise exports contracted for the 14th straight month in January, dropping by 13.5% y-o-y. With the severity of export weakness already exceeding that experienced during the financial crisis of 2008-2009, Indian exporters may be poised for further hardship. Merchandise imports stood at $29 bn in January, 10.5% down from the same period one year previously.

India's industrial output contracted for a second successive month in December 2015, down 1.3% y-o-y, due to declining manufacturing and capital goods production. The manufacturing PMI remained flat at 51.1 in February with the activity sub-indices moving in diverging directions. The output index declined from 51.3 in January to 51.0 in February, but new orders picked up from 51.7 to 52.3. Leaving aside month-tomonth volatility, the headline PMI was higher in the 1Q16 at 51.1 compared to 50.0 in the 4Q15, with increases in both the output and new order indices.

The GDP growth expectation for 2016 remained unchanged at 7.5%.

China
China's economy is slowing, with growth easing to a 25-year low of 6.9% in 2015, as the world's second-largest economy continues to pursue a reform agenda to open its capital markets and shift away from its manufacturing roots. This slowdown has renewed fears of a hard landing for China's economy. In spite of China’s slowdown, its contribution to global demand in many markets remains high, with the country contributing almost one-third to global GDP growth in 2015. China’s economic data, especially GDP growth data, has been the subject of criticism for decades. There are two concerns: One worry is that in terms of trends, over long periods of time China’s GDP data overstates actual growth. Another worry is that during economic downturns (and upturns), the reported growth is too smooth, according to cycle analysis. Consistent with changes in 2015, China has lowered nearly every quantitative macroeconomic target, with 2016 GDP growth targeted at 6.5-7.0%. The latest “work report” makes it clear that the government is expecting a challenging year ahead, and is adjusting its targets and policy intensity accordingly. At the same time, the economy’s recent performance as measured against its stated growth targets provides ample room for doubt about the feasibility of those targets. This would be the second consecutive year that China decreased the annual growth target – and the first time it considered a range rather than a numeric target.

The PBoC has continued easing its monetary policy, in spite of the authorities’ stance on the Chinese yuan which they want to keep “relatively stable and strong”. It seems two more interest rate cuts may be considered once sentiment on the currency improves. .Also, the PBoC has continued efforts to keep interbank rates low by making further cuts in the required reserve ratio (RRR) – or the amount of cash banks need to hold – and further encouraging bank lending. Accordingly, the PBoC cut the RRR by 0.5 percentage points. The cut, which came into effect promptly, means that most large Chinese banks will have a reserve ratio of 17%. This is the fifth time in the past year that the PBoC has cut the RRR, with the last cut on 23 October. RRR cuts are designed to increase liquidity in the economy in the hope of boosting consumer spending and capital investment. The aim clearly is to support the economy at a time when downward pressures on growth remain strong and uncertainty is elevated.

China’s foreign exchange reserves declined again in January, falling by $99 bn to reach $3.23 trillion, and again in February, falling by $29 bn to reach $3.20 trillion, following a record drop of $108.3 bn in December 2015. Since their peak in mid-2014, foreign exchange reserves have fallen by $762 bn as capital flows have turned sharply negative. However, nearly one-quarter of overall outflows were linked to temporary factors such as repayment of foreign loans. China’s structural current account surplus and its net FDI position have helped to moderate the impact of financial outflows, and several types of flows are likely to come down in 2016. The authorities will need to ensure that overall financial outflows are moderate in order to prevent a nasty cycle of outflows and currency weakness. China needs to support the exchange rate is affecting macroeconomic policy.

Merchandise exports fell by 25.4% in dollar terms y-o-y last month, compared with a drop of 11.4% in January. Merchandise imports also declined, falling 13.8% last month, compared with a 19.0% drop in January, in a further cooling of demand in China that is affecting its Asian neighbours. China's trade surplus narrowed in February to $32.59 bn from $63.34 bn in January. Although trade data is always bumpy at the start of the year because of the shifting timing of the Chinese New Year, January data indicates that global trade remains subdued.

CPI inflation increased from 1.7% in December 2015 to 1.9% in January 2016, and producer price index (PPI) deflation continues to be a major challenge for the corporate sector, improving to -5.3% y-o-y in January.

The PMI for February is 48, down 0.4 points from the previous month. The index readings for all key categories – including output, new orders and employment – signalled that conditions have worsened, in line with signs that the economy’s road to stability remains bumpy. The government needs to press ahead with reforms, while adopting moderate stimulus policies and strengthening support for the economy in other ways to prevent it from falling off a cliff.

Overcapacity in heavy industry and real estate destocking may continue to drag on industrial profit growth in 2016. Moreover, the upstream mining sector will remain weak, although a cyclical rebound is possible in the next year. The GDP growth expectation remains unchanged at 6.3% this year.

OPEC Member Countries
GDP growth in Saudi Arabia in 2015 stood at 3.4% after posting an expansion of 3.6% in the 4Q15. The non-oil private sector showed encouraging improvements in business conditions last month on growth in output and new orders. The PMI reading of February registered 54.2, up from January’s 53.9. Furthermore, the employment rate posted the highest increase in four months.

The economy of Indonesia grew by 5.0% y-o-y in the 4Q15, signalling the highest growth in the year and bringing full-year growth to 4.8%. Acceleration in both government spending and investments offset the declines in private consumption and exports. The manufacturing sector continued moderating in February on slightly lower production on the back of a decrease in new orders.

In the United Arab Emirates, the momentum in the non-oil private sector increased in February on improving rates of growth in both output and new business. The respective PMI posted 53.1 last month, up from 52.7 in January. The survey also noted an improvement in employment at the quickest pace in three months.

Other Asia
In Vietnam, GDP grew by 6.7% y-o-y in 2015, higher than 2014’s growth of 6.0%. Growth accelerated in the 4Q15 to 6.7% y-o-y, up from 6.5%. The State Bank of Vietnam left its official interest rate – its refinance rate – unchanged at 6.5% in February. The manufacturing PMI survey for February showed a continued rise in production, though at a slower pace, while new business and job creation also increased. The index posted 50.3 points in February, down from 51.5 in the previous month.

The economy of Malaysia expanded by 5.0% y-o-y in 2015 from 6.0% in 2014 on lower private and public consumption, investment and net exports. Inflation increased 3.6% y-o-y in January, marking the highest rate since March 2009. The manufacturing sector posted another below-50 reading of its PMI in February at 47.8, which was down from 48.6 a month earlier. The survey showed a sharp decline in output together with a slower drop in new work orders received. This led to a decrease in buying activities and employment by manufacturers.

Africa
In South Africa, GDP expanded by 0.6% y-o-y in the 4Q15, down from 1.0% in the 3Q15. For the full year 2015, growth stood at 1.3% y-o-y, the lowest level since 2009. Mining and construction activities were in decline, while the agricultural and finance sectors also decelerated. The manufacturing PMI reading on business conditions in February also sent a negative signal. The survey showed steep declines in both production and new orders. The index posted 49.1 last month, down from 49.6 in January.

Inflation in Egypt increased by 10.7% y-o-y in January, falling from December’s 11.9%, its highest reading in 17 months. In February, business conditions in the non-oil private sector worsened for the fifth consecutive month with the PMI posting 48.1, compared to 48.0 in January. However, the decline in output, as well as new orders from the domestic market and new export orders, were all slower than the previous month. The survey also showed that the depreciation in the Egyptian pound pushed input costs up last month.

Latin America
Argentina has been undergoing a big shift in economic policies since December 2015, which are aimed at restoring foreign investor confidence and returning the country to the global capital markets. The floating of the country’s currency has led to a 46.6% depreciation in the past three months. However, the pace of depreciation clearly slowed in February to 8.5%, compared to 18.7% and 19.4% in December and January, respectively. The government has also reached an accord with creditors, paving the way to its return to the international capital markets.

consecutive month in February. On the back of increasing expectations for inflation to rise to more than the target limit of 4%, the central bank increased the rate in December. The economy of Chile expanded by 2.2% y-o-y in the 3Q15, following growth of 1.9% in the previous quarter.

Transition region
In the Czech Republic, GDP grew by 4.2% y-o-y in the 4Q15, signalling the second fastest pace of growth in the year. For the full year, GDP growth accelerated notably to 4.2%, up from 2.0% in 2014. Growth in gross fixed capital formation increased significantly, rising more than three times in 2015, growing by 7.2% y-o-y, compared to 2.0% in 2014. Household and government consumption also increased notably from the rate reached in 2014. The manufacturing sector generally signalled strong growth in February, with the respective PMI at 55.5, though this was lower than January’s 56.9.

In Poland, growth in GDP accelerated slightly last year, rising 3.6% y-o-y, compared to 2014’s 3.3%. Both public consumption and investment grew at a slower pace than in 2015. However, household consumption grew by 3.0% versus 2.7% in 2014.

Oil prices, US dollar and inflation
Compared to its most important currency counterparts, the US dollar weakened on average in February, with the exception of the pound sterling. The US dollar also weakened against the Chinese yuan and the Brazilian real. It fell by 2.1% against the euro, declined by 2.7% against the yen and lost 1.3% of its value compared to the Swiss franc – but rose by 0.8% versus the pound sterling.

Compared to the Chinese yuan, the US dollar fell by 0.3% m-o-m on average in February. This comes after several months of the yuan’s weakening, having declined by around 7% since August compared to the US dollar. Also, the Brazilian real gained strength against the US dollar in February, which weakened by 1.9% m-o-m on average in February. However, the Russian rouble continued weakening, falling 1.4% m-o-m versus the US dollar in February. Also, the Indian rupee fell by 1.5% m-o-m compared to the US dollar.

Given the re-emergence of some fragility in the global economy, a rate hike by the Fed seems unlikely in the very near-term. This has supported the expectation of a continued low interest rate environment in the US, weakening the US dollar. While the US dollar is expected to remain strong in general, the short-term weakness might continue as long as challenges in the global economy – and other factors – continue to keep the Fed from hiking interest rates further.

In nominal terms, the price of the OPEC Reference Basket (ORB) rose by a monthly average of $2.22, or 8.4%, from $26.50/b in January to $28.72/b in February. In real terms, after accounting for inflation and currency fluctuations, the ORB rose by 6.8%, or $1.25, to $19.68/b from $18.42/b (base June 2001=100). Over the same period, the US dollar fell by 1.3% against the import-weighted modified Geneva I + US dollar basket*, while inflation rose by 0.2%.



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