The latest BofA Merrill Lynch Global Research report, titled “BofA ML Economics – Global Economic Weekly: Cooling Core†dated 8 March, authored by the Global Economics Team at BofA Merrill Lynch Global Research focuses on backdrop in inflation worldwide. According the report, global economy continues to motor along in a modest recovery despite the distortions that have been introduced in the global data recently. Most regions continue to participate in a broad-based rebound in the manufacturing sector.
Important chapters of the report cover economic developments around the world.
Global Cooling core
A key part of the global economic forecast is that spare capacity will cause core inflation (ie, excluding food and energy) to continue to drop in most countries. This benign inflation backdrop means most central banks can focus on growth, delaying any tightening well into the economic recovery. Two years ahead, with core inflation well below target, a number of central banks will be in the odd position of seeking to boost inflation.
United States: Snow job
With much of the data distorted by winter storms, investors should pay more attention to storm-resistant surveys. While some hard data for February was quite weak, survey data remains healthy, including solid readings for both the manufacturing and nonmanufacturing purchasing managers indexes. However, surveys are an imperfect substitute for hard data and the near-term outlook will become as the snow melts this spring.
Euro area: ECB proceeds with its exit strategy
Core Europe should enjoy a significant economic recovery this year, riding the rebound in global manufacturing. GDP growth will surprise to the upside in 2010 and ECB will react with a 25bp interest rate hike in December 2010.
Japan: Signs of life in domestic sectors
The recent data shows that the labor market is picking up albeit from very low levels and the slide in capex is finally nearing its end. This is a result of improvement in corporate profit margin strong exports to Asia, in our view.
Emerging Asia: A slow exit from emergency
The monetary policy setting in Asia has merely turned from loose to loose. This is admittedly positive for near-term growth and asset prices. However, extremely loose policies – if maintained for too long – risk inflating asset bubbles and sowing the seeds of inflation.
Emerging EMEA: Saudi Arabia: A strong long-term story…
With its large and closed domestic market, Saudi offers an exciting growth story in the long-term. High savings, a big demographic bonus, and the pressing need for infrastructure spending are big pluses.
Latin America: Highlights from the road
Overall, the appetite to put money to work in the shortterm is small as investors remain concerned about , regulatory changes for banks in the US and policy stimulus withdrawal across the globe, particularly in China. Among equity investors, positioning heavily favors Brazil, while interest in Mexico is light. Clients did not seem to care much for politics.
