Both the U.K. and USA publish their final GDP Q4 results on Friday, both will be closely monitored, for different reasons
Both the U.K. and USA statistics agencies publish the last quarter GDP figures for 2017, on Friday January 26th. Both readings will be carefully monitored for any signs of economic weakness, or continued strength, as the year came to a close. The U.K. reading will be carefully watched for further signs that the impending Brexit is not adversely affecting the economy, whilst the USA reading will be monitored for any signs that a weakened dollar, throughout 2017, has failed to dent the country’s consistent growth, recorded over recent years.
At 9:30am GMT (London time) on Friday 26th January the U.K. ONS (official national statistics) agency will publish both the final quarter and year on year GDP figures for the U.K. The forecast is for a reading of 0.4% for the final Q4 of 2017, resulting in a year on year GDP forecast for growth of 1.4%.
Analysts and investors will monitor both of these readings carefully, particularly in relation to the impending Brexit issue, as many economists and market commentators believed (and indeed predicted), that the U.K. economy would immediately flirt with recession in late 2016 and in 2017, due to the referendum vote to exit the E.U. However, as many are at pains to point out; the U.K. hasn’t left yet, therefore any Brexit economic impact can only be judged once (and if) the U.K. enters into a transition period and once it finally exits.
The Q3 GDP reading came in at 0.4%, should the Q4 figure come in as forecast at 0.4% then the 2017 growth figure would come in at 1.4%, a YoY fall of 0.3%, from the 1.7% previously recorded. Whilst this would represent a fall in GDP growth, many economists would regard this result as acceptable, given the premature predictions of recession. However, if the reading comes in at 0.5% for Q4, similar to a prediction made by the NIESR, an independent economic body, then a GDP figure of 1.7% may be maintained. Sterling has enjoyed a rally versus its main peers in 2018, up over 2% versus many peers and up circa 5.5% versus the U.S. dollar. Should the GDP reading beat the forecast, then sterling may experience increased attention and as a consequence greater activity.
At 13:30pm, GMT (London time) the latest GDP figure for the USA economy will be published by the Bureau of Economic Analysis; the annualised (QoQ) (4Q A) reading. The forecast is for a reading of 3%, a fall from the 3.2% annualised reading registered for the previous quarter. The YoY growth rate is currently 2.30%.
Despite the much heralded tax reduction programme finally coming into force and law in December 2017, this fiscal stimulus is unlikely to have effected GDP performance in the USA during 2017. There is no evidence that a lower U.S. dollar had the desired effect; to stimulate a boom in the manufacturing and export sectors. The USA balance of trade and payments still recorded increased deficits, year on year.
Any reading above, or close to 3% for leading Western Hemisphere economies, is regarded as favourable, therefore if an annualised reduction in GDP growth is recorded, from 3.2% to 3%, then analysts, traders and investors may regard this as acceptable, in terms of the value of USD.
KEY ECONOMIC INDICATORS FOR THE U.K
• GDP YoY 1.7%.
• Interest rate 0.50%.
• Inflation rate 3%.
• Jobless rate 4.3%.
• Wage growth 2.5%.
• Debt v GDP 89.3%
• Composite PMI 54.9.
KEY ECONOMIC INDICATORS FOR THE USA
• GDP QoQ annualised 3.2%.
• Interest rate 1.50%.
• Inflation rate 2.10%.
• Jobless rate 4.1%.
• Debt v GDP 106%.
• Composite PMI 53.8.
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