Economic Highlights

The Q4 GDP release showed that the UK economy ground to a halt, much as expected, although December (+0.3% m/m) improved from November (-0.3%). For the whole of 2019, economic output expanded by 1.4% vs 1.3% in 2018. Initial post-election euphoria has faded somewhat owing to the PM’s determination to have a trade deal with the EU wrapped up by the end of the year, which many feel is a challenging timeline.

Retail Sales were flat in January, which was a disappointment. But set against Consumer Confidence that remains very close to all-time highs (University of Michigan survey), there seems to be little cause for alarm. Core inflation held unchanged at 2.3%, still higher than the Fed’s 2% target. But with its preferred PCE inflation measure still as low as 1.6%, the Fed will remain relaxed for now, especially with the lingering COVID-19 threat.

There was a disappointing end to 2019 for the euro zone economies, with just 0.1% growth in Q4, the lowest since the euro crisis in 2013. More encouragingly, though, the number of people in work increased by 0.3%. Sluggish global trade, the problems in the automotive sector and the effects of the coronavirus suggest little chance now of an improvement in Q1’20, although investors are already looking ahead to the potential for recovery later in the year.

Sales tax increases and the typhoon overwhelmed the potential support of beer-swilling rugby fans in Q4, as GDP dropped 1.6% q/q (or an even more alarming -6.3% on an annualised basis, as these things are reported). Those two negative factors should be a one-off, and so growth is expected to recover in Q1 (although COVID-19 will have a dampening effect).