Every week at the Current we round up the worlds biggest business stories. This week: global growth is down though Australia enjoys growth, the risk of deflation is down, Japan may join a regional institution, the US economy contracts, Novo Banco may be bought, and a major free trade area in Africa is unveiled.
Global growth outlook down
Last week the OECD (The Organisation for Economic Co-operation and Development) forecasted that Canada’s GDP would fall to a rate of just 1.5% growth this year, down from 2.6% a few months earlier. Now the OECD has adjusted its global growth outlook to 3.1%, down from the 3.7% growth it had predicted in November. The organization has suggested that in order to boost economic output more investment was crucial. Markets in Europe however have been cautious to invest heavily until the Greek debt crisis begins to show more promising signs.
Risk of deflation also down
Not to be solely a bearer of bad news, the OECD has also confirmed that the risk of deflation across the globe has been reduced. For the first time in six months the eurozone experienced a rise in consumer prices reaching 0.3% in annual inflation. Although encouraging, the growth falls short of the ECB’s targeted 2% inflation and the bank has not ruled out increasing its quantitative easing program to boost growth. Such an increase could go a long way to boosting growth in the eurozone, but it would come at the expense of the euro – which would likely drop in value.
Australia enjoys growth
Australia has defied the odds by posting growth of 2.3% in the first quarter of 2015, compared to last year. Growth was driven by mining exports which surpassed expectations. Despite this unexpected boost, the Bank of Australia will keep interest rates at 2% – a record low for the country. Last week the OECD cautioned Australia against cutting rates further for fear of a housing bubble.
Japan may join South East Asian institution
Japan may join the Asian Infrastructure Investment Bank, which will seek to supplement the IMF and other institutions in funneling investment to South-East Asia. The bank is led by China, and the United States has remained skeptical. Despite US concerns, many key American allies – including the UK and Germany – have already joined the bank and Japan could soon follow. The AIIB’s signatories will agree to the bank’s articles of agreement by the end of the month.
Novo Banco may be bought
Novo Banco, a Portuguese bank, may soon be bought by either Anbang or Fosun; Chinese companies which have both tabled bids in the region of €4 billion. Chinese companies have recently invested heavily in other European assets including Club Med and Pirelli.
US economy contracts
Despite initial a prediction of 0.2% growth, America’s economy suffered from an annualised contraction of 0.7% in the first quarter of 2015. The USD’s high value has hurt manufacturing and led, in part, to a large trade deficit reaching the highest level in 6 years in March. April, however, is promising to be a better month for the US as the trade deficit is set to shrink by nearly 20%.
Major African Free Trade Area unveiled
After 5 years of negotiations African leaders have unveiled the Tripartite Free Trade Area (TFTA) connecting 26 countries and 625 million people in a new common market stretching from Cairo to Cape Town. The deal merges and strengthens preexisting economic communities in Africa including the East African Community, Southern African Development Community and the Common Market for Eastern and Southern Africa which boasts a combined $1 trillion in GDP. Officials hope the deal will contribute to a further $1 trillion worth of economic activity. The deal still must pass through the legislatures of the participating countries but experts believe that the deal will make it through unscathed and in a reasonably timely manner. With 5% growth already the norm, the TFTA could encourage even more investment from both within Africa and across the world.
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