Early on a Monday 28 July 2014 THE WEEK THAT WAS They dont learn... Since the global economic recovery started towards the latter part of 2009, economists would predict stronger growth for the next year, only to keep on revising their forecasts lower as time passes. But for the following year, they would once again predict a growth improvement only to pare it back later. 2014 has not been an exception to this rule. Last week, the International Monetary Fund released an update to their World Economic Outlook that contained their global growth estimates. It is the third time that they have now revised their growth estimates for 2014 lower. They now see the world economy growing by 3.4% this year, down from 3.7%. The slower growth is as a result of muted growth out of the US and emerging markets. The IMF downgraded South Africa’s growth for 2014 to 1.7% as industrial action dominates and electricity supply constrains potential output growth. The NUMSA metal and engineering sector strike is now entering its 5th week with some development, but is still not resolved. The UK is set to be the fastest growing economy within the major developed countries. Second quarter GDP grew by 0.8% which was the same as the previous quarter. The economy finally recovered all the output that was lost during the financial crisis and the IMF forecasts that the UK will grow at double the speed of the US for this year. Despite the stronger growth, the Bank of England remained cautious on tightening monetary policy. The week heralded some better than expected economic data. Chinese manufacturing data improved to an 18 month high, indicating that the economy is on the mend. US unemployment claims dropped to an 8 year low and is now on par with lows seen in past recoveries. US consumer price inflation was also somewhat softer than expected at 2%, diminishing fears of inevitable interest rate hikes. South African consumer price inflation also came out better than expected at 6.6% - slightly lower than the 6.7% that was expected and unchanged from the previous month. Price pressures, however, have been broadening and the Reserve Bank will have to be careful not to fall behind the curve in their interest rate hiking cycle. US equity market valuations have been worrying, as the run-up in share prices has been relentless, but corporate earnings being released for the second quarter of this year are justifying these valuation levels. Almost three quarters of earnings reports have exceeded expectations so far. The share price of those that have fallen short were punished, however. Global equity markets had to contend with improving economic data, stronger US corporate earnings as well as lofty valuations levels last week. The FTSE/JSE All Share Index closed marginally lower as the bourse was dragged down by industrial shares which lost 1.5%. Resources shares firmed by 2.2% as metal prices climbed, but gold mining companies lost 2.2% on the back of the weaker gold price. The price of gold lost 0.9% to drop below $1,300 an ounce. The S&P 500 rose 0.5% to a new record high, but the industrial heavy Down Jones Index founded the going tough and lost 0.1%. Emerging markets outperformed developed markets on the back of stronger currencies. The rand appreciated by more than 1% against the major currencies, closing at R10.52 against the US dollar after touching R10.46 at one stage.
Posted on: Mon, 28 Jul 2014 11:12:48 +0000
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