Japan’s economy shrank at the fastest pace in almost six years as a sales tax hike hit consumer and business spending, raising the risk of a recession as China’s coronavirus outbreak chills global activity. The widening fallout from the epidemic, which is damaging output and tourism, could have a significant impact on Japan if it’s not contained in coming months. Japan’s GDP shrank an annualized 6.3% in the October-December period, government data showed. It was the biggest fall since the second quarter of 2014, when consumption took a hit from a sales tax hike in April of that year. The weak data also comes amid signs of struggle in the wider region with the coronavirus, leaving Japan vulnerable to a recession. Singapore cut its economic growth projections for 2020, Thailand posted its slowest expansion in five years and China’s home prices rose at their weakest pace in almost two years. The sales tax hike in October last year - as well as unusually warm weather that hurt sales of winter items - weighed on private consumption, which sank a bigger-than-expected 2.9%, marking the first drop in five quarters. Capital expenditure fell 3.7% in the fourth quarter. Combined, domestic demand knocked 2.1 percentage points off GDP growth, more than offsetting a 0.5 point contribution from external demand.
The UK’s Office for National Statistics released the quarterly GDP report last week. The data showed that there was no growth during the final three months of the year. This follows a revised 0.5% increase during the third quarter. Despite increases in the construction and services sector, the manufacturing and automobile sector slump offset the gains. On a year over year basis, the UK’s GDP grew just 1.1% on the year, slightly down from 1.2% into the previous quarter. Meanwhile the GBP continues to strengthen ahead of the UK-EU talks buying 1.3043$ and €1.2028 while the FTSE has started the day strong quoting 7427.60 regaining some of the Friday’s losses. A raft of macroeconomic data floods the UK docket with labour market figures on Tuesday, inflation on Wednesday, retail sales on Thursday and flash PMIs on Friday. So far, economic data for the month of January has been somewhat robust in comparison. With various measures of private business picking up, focus now shifts to inflation as consumer prices could be dealt a blow following the sharp fall of oil prices during the month. This could ease the pressure of the Bank of England for its next interest rate decision.
Europe may have lost the battle to create digital champions capable of taking on U.S. and Chinese companies harvesting personal data, but it can win the war of industrial data, Europe’s industry policy chief said on Saturday. Vast troves of data from how fast we drive our cars to how much time a robot needs to churn out products will open a new front in the battle for digital dominance, said Thierry Breton, the European Commissioner in charge of the bloc’s single market. Alarmed by the dominance of U.S. and Chinese tech companies such as Google, Amazon or Huawei, the European Commission is leaving behind the “laissez-faire” attitude of the early 2000s and ratcheting up regulatory pressure to protect its businesses. The new approach will be on display on Wednesday when Breton unveils the bloc’s new data and artificial intelligence strategy. Breton said the EU had a unique opportunity to win the next phase of the digital revolution centred on the harvesting, management and analysis of data from factories, transport, energy and healthcare. A former CEO of French IT giant Atos and telecoms group Orange, Breton said the European Commission would unveil a three-pronged approach consisting of tighter regulations, infrastructure investment and sector-specific strategies. Europe will remain open to non-European companies but wants to use the heft of its industrial base to set its own rules before other continents do, Breton said.
The markets look to a quiet trading week ahead. The Reserve Bank of Australia will be releasing its monetary policy meeting minutes covering the early February RBA meeting. Interest rates were left unchanged, but the central bank downgraded its GDP and inflation forecasts for 2020. The FOMC meeting minutes will be coming up this week. They cover the month of February where the central bank held rates steady. Policy makers signalled that interest rates will remain unchanged in the course of the year so unless there is some surprising news, the Fed minutes could be a non-event. Data from the Eurozone will cover the flash PMI’s for February. The data for January was somewhat mixed but with Germany’s industrial sector falling sharply in December, focus will be on whether the forward-looking indicators will see a pick-up in growth so watch out for a volatile euro.