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Each week, the Economic Research Department of BNP Paribas reports on economic news.
Given recent developments in the world economy, including in the US, the reference to ‘uncertainty’ in the title of Janet Yellen’s recent remarks at the Economic Club of New York was most appropriate. For central banks, factoring in the role of uncertainty is particularly complex when interest rates are very low. This calls for gradualism, as she so eloquently explained, which implies proceeding slowly when hiking rates. The market liked the story. It may seem odd at first glance, but with the help of the central bank, increased uncertainty ended up being a signal to take more risk… The feeling that the Fed will act cautiously, in combination with better behaved markets, will hopefully give a confidence boost to households and companies. This would be welcomed around the globe, including in the Eurozone where recent sentiment indicators paint a mixed picture. The purchasing manager indices are up but the European Commission economic sentiment indicators have weakened in the first quarter compared to the previous quarter. The hard data (activity, retail sales) on the other hand have been rather robust and in addition the growth in bank lending shows that the monetary transmission of the ECB is working. Finally, in China the just released PMI data show a rebound. This has been met with relief considering how dominant the concerns about the Chinese slowdown have been as of late.
William De Vijlder
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