IMF publishes latest World Economic Outlook

The IMF released its latest World Economic Outlook on Friday, including its projections for global economic growth. The Fund forecasts a 3.3% expansion in 2025 and 2026, up marginally from an estimated 3.2% last year. Global inflation is projected at 4.2% this year and 3.5% in 2026 as price growth steadily comes down towards central banks’ target rates. The US received a significant growth upgrade to 2.7% this year, from 2.2% previously, though the Fund did caution around inflation risks. The UK also received a growth upgrade, to 1.6%, from 1.5% previously. The Eurozone’s 2025 forecast was revised down to 1.0%, from 1.2% previously, with Germany revised down to 0.3% from 0.8%. China is forecast to slow to 4.6% this year, from the IMF’s estimate of 4.8%.

Within the region, the IMF revised down its forecast for Saudi Arabia in 2025, now seeing growth of 3.3% rather than the 4.6% it had previously projected as OPEC+ production cuts were extended. Egypt was also revised down, to 3.6% from 4.1% in October, contributing to the MENA region’s growth outlook falling to 3.5%, from 4.0% previously.

UK retail sales surprised to the downside in December as they declined 0.3% m/m, missing the predicted 0.4% growth. Stripping out the volatile auto fuel component, sales were down 0.6%, compared with consensus estimate of 0.3% growth, while the previous month was revised down from 0.3% growth to just 0.1%. On an annual basis, sales in December were up 2.9% compared to December 2023, missing the predicted 4.0% growth. Food sales saw a notable slump in a disappointing Christmas period for retailers, with the data adding to fears around weakness in the UK economy following the November GDP miss reported the previous day.

Eurozone CPI inflation was confirmed at 2.4% y/y in December and 0.4% m/m, unchanged from the first estimate and up from 2.2% in November. Core inflation was also unchanged at 2.7% y/y having held steady at the same pace since September as energy prices have driven the acceleration in headline inflation. Inflation averaged 2.4% in 2024, down from 5.5% in 2023 and 8.4% in 2023. Consensus forecasts put average inflation at 2.0% this year, giving space for further rate cuts from the ECB this year as Eurozone growth remains weak.

Industrial production in the US grew 0.9% m/m in December, far exceeding the predicted 0.3%, while November’s print was revised to 0.2% growth from a 0.1% contraction on the initial reading. The December growth was the strongest expansion logged since February as the resolution of a strike at Boeing helped manufacturing see a 0.6% increase. Mining was up 1.8% and utilities 2.1%.

Today’s Economic Data and Events

No notable data releases scheduled today

Fixed Income

• Pressure on global treasury markets eased last week on the back of a series of data releases indicating softening inflationary pressures. In the US, treasuries rallied across the curve with yields on the 2yr closing down 10bps over the week at 4.2826%, and the 10yr yield down 13bps at 4.6270%.
• In the UK, pressure on Chancellor of the Exchequer Rachael Reeves eased as gilt yields fell on the back of global trends, constructive inflation data, and a growth forecast upgrade from the IMF. The 10yr closed down 18bps over the week at 4.660%.
• Major central bank decisions scheduled this week include Japan on Friday where the expectation is for a 25bps hike to 0.50% for the target rate, while Turkey’s central bank is forecast to make its second 250bps cut of this cycle, which would take the one-week repo to 45.00%.

FX

• The dollar index logged its firstly weekly decline in seven weeks last week as the greenback lost 0.3% against its basket of peer currencies with constructive inflation data raising hopes of looser monetary policy going forward.
• EUR closed up 0.3% at 1.0273, while JPY strengthen by 0.9% to 156.30, with expectations of a BoJ hike this week supporting the currency. GBP continued to lose ground, however, with cooling inflationary pressures adding to rate cut bets there also.

Equities

• In Asia, the Shanghai Composite closed up 2.4% w/w, bolstered by robust Chinese GDP growth results for the fourth quarter. The Hang Seng added 2.6% over the week but the Nikkei closed down 3.0% w/w on Friday.
• European equity markets had a strong week with gains across the board. The UK’s FTSE 100 closed up 3.1% w/w for a record high, while the DAX gained 3.4% and the CAC 3.8%.
• In the US, the S&P 500 had its best week since the election as it closed up 2.9% w/w, bolstered by signs of slowing inflation. The Dow Jones had an even better week as it added 3.7% while the NASDAQ gained 2.5%. US markets are closed today for Martin Luther King Jr Day.

Commodities

• Oil prices continued to head higher on the back of the increased sanctions on Russia, with Brent futures closing up 1.3% w/w for the straight weekly gain, closing at USD 80.8/b on Friday. WTI added 1.7% up at USD 77.9/b.