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Weekly Economic Insights - 8 April 2019

Macro Highlights - 4/9/2019

Highlights of the week

Economist insights: US business sentiment and employment data still solid in March, inflation remains low in Switzerland

United States

  • The ISM manufacturing index rebounded to 55.3 in March, notably on the back of higher new orders, production and employment
  • Although both the ISM manufacturing and non-manufacturing indices dropped over Q1 2019, they remain above 55, in line with our forecast of a gradual slowdown in GDP growth in 2019 to 2.7%
  • In March, the number of new jobs rebounded to 196,000 and the participation rate of the 25-54 age bracket continued to rise, limiting nominal wage growth to 3.2%

Switzerland

  • Inflation rose only slightly in Switzerland in March, up from 0.6% to 0.7%…
  • … and the SNB has revised its inflation forecasts down sharply for 2020 and 2021…
  • …which backs our scenario of a lasting monetary status quo. Moreover, the SNB could resume its foreign exchange intervention if the upward pressure on the Swiss franc were to strengthen further

Focus – Central banks: Has China’s monetary stimulus policy become less effective?

  • Our in-depth analysis of Chinese financial data confirms that the stimulus policy is more selective than in previous cycles of monetary policy easing…
  • … as it aims to support credit to private sector companies while containing growth in mortgages and loans to the already highly-indebted State companies
  • Moreover, the objective of reducing shadow banking has been maintained
  • Consequently, we continue to expect that the macroeconomic impact of the monetary stimulus should be lower than it had been in 2015
  • However, infrastructure investment, which has a more direct impact on GDP, has increased
  • This is why we continue to expect a slight acceleration in GDP growth in China in H1…
  • … which could contribute to reducing downward pressure on the yuan over the coming months

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