The global economy remains in a fragile recovery mode, as fourth quarter gross domestic product (GDP) figures came in worse than expected in many cases. With all four major economic zones reporting worse than expected results moving into 2013, the financial markets were caught somewhat off guard, but remain predominantly bullish moving forward.

Macroeconomic Highlights

US Economy Continues Fragile Recovery
The US. economy remained relatively robust through February, despite a hike in payroll taxes large enough to produce a $3 billion budget surplus in January. Consumer spending rose 0.1% in January, matching many economist forecasts. The increase was driven primarily by a 14% jump in auto sales (which exceeded many analyst expectations), as well as lower oil prices.
While many economists remain bullish on the US. economy, a drop in fourth quarter gross domestic product by a 0.1% annual rate caught investors by surprise. The move was largely driven by the largest drop in defense spending in more than 40 years, which offset positive trends seen among consumers (as mentioned above) and businesses (corporate earnings).
Looking ahead towards March, the financial markets seem largely unconcerned with the unexpected fall in GDP, as consumer spending, corporate earnings and fixed investment were all fairly strong. But, the markets will be watching for any further signs of trouble in Q1 GDP figures, which many economists expect to be between 1.5% and just below 2%.

EU Economy Sends Mixed Signals
The eurozone economy continued to show signs of improvement in February, with executive and consumer sentiment rising to its highest levels in seven months in January. But, industrial production fell sharply to its lowest quarterly rate in more than three years last year, stoking fears of a third consecutive quarterly economic contraction for the troubled area.
The real story lies somewhere in the middle of these two stories. Data suggests that the eurozone could have reached a low point in November, with early signs of recovery being seen in December’s data where industrial production rose 0.7%. Consumer spending has shown a similar trend, with a sharp fall in 2012 and early signs of recovery in 2013.
Looking ahead into March, the financial markets continue to be relatively optimistic about the eurozone’s economy, as the euro has gained ground against the dollar throughout the beginning and middle of February. But, traders and investors will be closely watching upcoming data (outlined below) to provide further clues as to the direction of the economy.

Britain’s Economy Continues to Disappoint
Britain’s economy continued to disappoint investors in February after data surfaced showing a 0.3% contraction during the fourth quarter of 2012. The figures were sharply lower than the decline of 0.1% that was forecasted by many economists, as North Sea oil production, lower factory output, and an ongoing hangover from the Olympics hurt the country’s output.
The markets are somewhat optimistic, however, by the incoming Bank of England governor Mark Carney, who had a very successful career managing Canada’s central bank. There has been speculation that the new banker may implement new forms of monetary policy to combat the region’s lack of growth, persistent inflation, and lackluster currency valuation.

Japan’s Economy Remains in Recession
Japan’s rounded out the world’s disappointing fourth quarter GDP figures, with a 0.4% annualized contraction at the end of 2012. Growth for the year came in at 1.9%, after a 0.6% contraction in 2011, but the fourth quarter marked the third straight quarter of contraction, suggesting that there could be ongoing problems moving into 2013.
These figures were worse than many economists forecast, particularly given that the Japanese yen had experienced a fall that should have spurred exports. Incoming Prime Minister Shinzo Abe has promised aggressive spending and monetary policy action aimed at boosting inflation to 2% and breaking Japan’s long bout of recession and falling prices.

Upcoming Events to Watch

March 1 – Germany will report its PMI Manufacturing Index data, providing insight into the health of its export-based economy. In January, the country’s PMI Manufacturing Index rose to 49.8 from 46.0, coming in just below the 50.0 threshold that would signify a return to growth after some 11 straight months of decline. Traders will be watching the figure closely, as Germany’s economy is a key component of the eurozone.

The European Monetary Union will also report its HICP Flash data, providing insight into inflation in the region. Currently, the European Central Bank sees inflation coming in at 1.8% in both 2013 and 2014, compared to 1.9% in a previous survey. Slow growth has been largely blamed for the drop in inflation forecast, but these trends could reverse if growth starts picking up.

March 5 – Britain will report its CIPS/PMI Services data, providing insight into the country’s economic growth. In January, the country’s PMI Services data rose to 51.5 from 48.9 in December, which was the strongest reading since September and beat median forecasts by analysts of 49.5, according to Reuters estimates, although expectations remain moderate.

March 7 – Japan will report its GDP data, providing insight into the country’s overall economic health. The country’s fourth quarter GDP shrank at an annualized rate of 0.4%, which was worse than median estimates of a 0.4% increase for the quarter. However, many expect an upturn over the coming months ahead of stimulus spending and monetary easing.

March 13 – The European Economics and Monetary Union will report its industrial production figures, providing insight into the region’s export economy. In December, industrial production showed a sharp turnaround, gaining 0.7% versus a 0.7% fall a month earlier. Traders will be looking for the same trends to occur in January’s numbers due out March 13.

March 20 – Britain will release its Labour Market Report, providing insight into the region’s fragile employment situation. While the unemployment rate fell from 7.8% to 7.7% last quarter, there is still a long way to go towards pre-recession 5% norms. Traders will be watching these figures for ongoing signs of improvement as a leading indicator.

March 27 - Britain will report its GDP data, providing insight into the health of its overall economy. The Bank of England warned that growth in the region would not gain momentum until 2015, blaming the government for a 2% inflation target that hasn’t helped, warning that inflation could move higher than expected as a result of administrative decisions.

March 29 – Japan will report its industrial production and consumer price index data, providing insight into its manufacturing economy and consumer prices. In December, the metric rose 2.5%, remaining in positive territory, but the figure fell below 2.5% expectations. But, December machine orders have boosted hopes for positive trends in January figures.

Inflation in Japan is also expected to be on the rise over the coming quarters. Prime Minister Shinzo Abe recently warned that failure to hit a new 2% inflation target would be a condition for changing the law governing the Bank of Japan. This means that the inflation target could be officially codified, giving politicians the ability to replace the Bank of Japan governor.

Related Articles
  1. Forex Education

    Investopedia Forex Outlook For February 2013

    The global economy is on relatively solid footing, after U.S. markets rose thanks to a debt deal and Japan introduced new stimulus in January.
  2. Forex Education

    Behind The Euro: History And Future

    The euro was designed to create economic parity among eurozone nations. Discover where it's going and where it's been.
  3. Forex Education

    The Seasonality Of The U.S. Dollar

    The long-term history of the U.S. dollar suggests that it is often stronger earlier in the year.
  4. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  5. Markets

    Are EM Stocks Finally Emerging?

    Many investors are looking at emerging market (EM) stocks and wonder if it’s time to step back in, while others wonder if we’ll see further declines.
  6. Investing News

    How the Paris Attacks Could Impact the Economy

    The horrific terror attacks in Paris will have a ripple effect on comsumer spending and tourism.
  7. Economics

    How Bitcoin Helps People Bypass Government Currency Control

    Bitcoin has helped ordinary citizens in some countries bypass government controls over free exchange conversions.
  8. Economics

    What Bitcoin Regulations Look Like Around The World

    Bitcoin is still so new that countries are struggling to make legislation catch up with technology. Some nations are more open to virtual currency than others.
  9. Mutual Funds & ETFs

    An ETF for Dollar Bulls: PowerShares UUP

    A look at PowerShares US Dollar Index Bullish Fund ETF.
  10. Economics

    Don't Hide From The Reality Of How Terrorism Affects The Economy

    After major terror attacks, most people don't want to think about economics. But the post-terror economy affects the lives of the whole world, so it's important to be knowledgeable.
  1. How are NDFs (non-deliverable forwards) priced

    The price of non-deliverable forward contracts, or NDFs, is commonly based on an interest rate parity formula used to calculate ... Read Full Answer >>
  2. What are the goals of covered interest arbitrage?

    The goals of covered interest arbitrage include enabling investors to trade volatile currency pairs without risk as well ... Read Full Answer >>
  3. What is the difference between a Nostro account and a regular bank account?

    The term nostro account is a bit of an umbrella term and can have different meanings for different contexts. For instance, ... Read Full Answer >>
  4. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  5. What types of companies benefit from reporting results utilizing constant currencies ...

    Any company that does a substantial amount of business in foreign countries, and is therefore subject to foreign currency ... Read Full Answer >>
  6. What are the benefits of financial netting?

    Financial "netting" is a general and somewhat colloquial term. It is used to describe the act of consolidating multiple transactions ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center