Clouds over Europe lifted slightly

One of the major news that came last week was the growing discomfort among Governing Council members over ECB President Mario Draghi’s leadership style.

Experts surveyed by the central bank this week have cut their outlook for inflation and growth in the euroarea, prompting the ECB to take more action to boost the economy.

Benoit Coeure, a member of the ECB's Executive Board said, "What we see is a subdued outlook for inflation and a weakening of the growth momentum and a continuously sluggish momentum in credit dynamics, which all confirm the need for a very accommodative monetary stance for an extended period of time."

However, data released by Eurostat today revealed that Euroarea GDP grew by 0.2 percent in the third quarter of 2014, up from 0.1 percent in the second quarter.

In Germany, a senior official in the economy ministry said that the country has averted recession in the third quarter and preliminary GDP data released on Friday confirmed this.

The positive news on German and French GDP have calmed the fears over stagnating Eurozone economy.

Next week ECB President Mario Draghi is scheduled to speak on Monday and German economic sentiment & manufacturing PMI are to be released.

US:Growth performance in line with projections

Last month US Federal Reserve announced the end of its bond-buying program, but left open the possibility of an eventual interest rate increase. The Fed’s next policy meeting is scheduled on December 16^th and 17^th.

New York Fed President William Dudley said that the time has not yet arrived for the central bank to start raising interest rates, which have been at effectively zero since December 2008.

“It still is premature to begin to raise interest rates–there remains slack in the labor market and the inflation rate is still too low,” Mr. Dudley said.

A paper “Global Prospects and Policy Challenges” published by the International Monetary Fund this week said that growth performance is in line with projections in the United States and China, but there are downside risks to the outlook for the euro area.

Next week FOMC meeting minutes will be released on Wednesday.

UK: Growth and inflation forecasts lowered

In the quarterly inflation report released by the BoE this week, the central bank said that inflation has fallen below the target of 2% set by the MPC “and is more likely than not to fall temporarily below 1% at some point over the next six months”.

While presenting the inflation report, BoE Governor Mark Carney unveiled lower UK growth forecasts (0.5% this year, 2.9% next year, and 2.6% for each of the following two years). He also lowered inflation forecasts and said that he did not expect inflation to reach the target of 2% for another three years.

He said, “Developments in the world economy mean some of the downside risks to growth in earlier projections have crystallized”. He added that main downside risk comes from weaker euro-area activity, which would weigh on the UK’s exports.

MPC official bank rate votes
are to be released next week.

Japan: GDP data takes centre stage

Weak data on the country’s consumer confidence, economic watchers sentiment and machine tool orders have led to the speculations that the Japanese government will delay the next sales tax hike. However, current account surplus brought some good news as it tripled in September.

A manufacturing executive told Reuters, "It's highly risky to force through a tax hike in a situation where consumption has not recovered as expected. It's desirable to delay it."

Next week Japan’s quarterly GDP data and monetary policy statement is to be released. The GDP data will be a very crucial factor in Prime Minister Abe’s decision on whether or not to increase the consumption tax from 8 percent to 10 percent.

Government's top spokesman, Yoshihide Suga, has said a final decision on the tax will wait until revised data is released Dec. 8.

"If it's below 2%, the tax increase has to be put off," he added.

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