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What do Economists Expect for the New Year?

Tuesday, January 1, 2008

weakened
since June.
The next Economics Weekly is published on
January 7th 2008. We wish all our readers a
Happy Christmas and a prosperous New Year
2008 promises to be another interesting year. With significant variance in the range of forecasts on offer and
fast changing perceptions of risk, financial markets could be in for a prolonged period of volatility. Key themes
for 2008 include, have central banks averted a massive rise in corporate defaults or will further cash injections
be required as losses continue to be disclosed? Will the US housing market recover? Will the UK
housing market collapse? Is the UK retail sector in for a tough period? Are we in for another bout of strong
M&A activity? Will commodity markets and emerging market equities come off the boil? Are markets too
complacent about inflation risk, so will bond yields rise in the major economies? Answers to these questions
will become clearer through economic data releases and policy action/ statements as the year unfolds.
Whereas this week, markets are likely to be mostly closed and/ or uneventful, the New Year launches with a
set of key survey and jobs data, which will either confirm fears of slower growth or raise hopes of a speedier
recovery in the major economies. Global central banks have offloaded a massive amount of cash into the
financial system, which could add to existing inflation pressures, especially in the eurozone, if not timely
drained. So whereas slower economic growth may take the edge off inflation in the months ahead, too loose
monetary policy may trigger too strong a recovery, raising inflation above comfort levels. So UK and US
interest rates may not fall as far and as fast as markets expect, while the ECB may still raise rates.
• Following sterling's break below $2 last Wednesday, as the unanimous MPC decision to cut interest rates and a
weaker than expected set of UK data, raised the prospect of the BoE aggressively cutting rates, market participants
are on the look out for more bad news on the economy. Nationwide house prices may confirm a sharp slowdown,
published Friday, but apart from that, sterling is likely to be driven by technicals and year-end positioning/ settlement
and markets will have to wait for key data releases in the New Year. US consumer confidence for December is due
on Thursday and could strengthen a touch, but new home sales may still be falling, due Friday. Japan issues a set
of CPI, industrial output and retail sales data as well as the minutes of the BoJ's last monetary policy meeting this
week.
• Markets are closed for New Year's Day on Tuesday, but open with gusto on Wednesday, anticipating weaker
manufacturing confidence in the UK, the US and the EU-13 (final) during December. Also, at 19:00, the US Fed
releases minutes of the December 11th monetary policy meeting when its main funding rate was cut 0.25% to
4.25%. Wednesday features the US ADP employment report and factory orders and EU-13 M3 money supply.
Friday is the heaviest day of the week for data, with service reports likely to show that confidence in the eurozone area
may have continued to have been negatively impacted on by wholesale funding pressures in December, while
service sector confidence in the UK and the US may have improved. Preliminary EU-13 CPI inflation in December
may stay around last month's 3.1% level, giving support to the ECB's decision to leave official rates unchanged. The
US non-farm payrolls jobs figure may come in at 110,000 in December, up from 94,000 in November.
December manufacturing & services surveys and US non-farm
payrolls launch the New Year
Nichola James, Senior Economist

Posted by MOHAMED SAID at 1:02 PM  

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