Economy in Brief

Several key themes have been driving financial market fluctuations in recent weeks, including the resilience of the US economy, the policy direction of the new US administration, geopolitical instability, and the productivity potential of AI. The trajectory of central bank policy has also taken centre stage, particularly following this week’s widely expected decisions by the ECB and the BoC to cut their respective policy rates by 25bps, while the Fed opted to leave its policy rate on hold (see chart 1 and 2). Despite the recent wave of optimism pervading financial markets, several factors continue to warrant caution. Chief among them is the uncertainty surrounding the policy direction of the new US administration, which could have far-reaching implications for global growth (chart 3). China's outlook more specifically remains fragile—not only due to potential shifts in US policy but also because of persistent stress in its property sector (chart 4). Additionally, weaker-than-expected economic data from the euro area this week, particularly the flat reading for Q4 GDP, further underscores concerns about the region’s sluggish growth momentum (chart 5). Meanwhile, central banks continue to face a delicate balancing act, as the resilience of the US labour market risks reigniting inflationary pressures, complicating the calibration of monetary policy. Lastly, while artificial intelligence is widely seen as a long-term driver of growth and productivity, growing competitive pressures within the tech sector have recently sparked concerns about the profitability of firms supplying AI infrastructure, highlighting the risks to one of the market’s most celebrated growth narratives. Still, there are bright spots that help offset some of these downside risks. One such example is India’s economy, which continues to show resilience amid incoming data that point to strong domestic demand, sustained investment flows, and policy measures aimed at bolstering growth (chart 3 and 6).

• Inventory subtraction is largest since Q1’23; net exports add minimally to growth.
• Consumer spending growth advances sharply; business investment declines.
• Price index growth picks up marginally.

• PHSI -5.5% (-5.0% y/y) in December vs. +1.6% (+6.2% y/y) in November.
• Widespread m/m falls in home sales, w/ the deepest drop in the West (-10.3%).
• Home sales down y/y in all four regions, w/ the largest decline in the Midwest (-6.9%).

• Jobless claims maintain narrow range.
• Total beneficiaries ease after prior week increase.
• Insured unemployment rate remains low and steady.

• Rate stability follows three meetings of decline.
• Economic goals are unchanged.

• Deficit widening subtracts substantially from real GDP growth.
• Exports decline to lowest level since November 2023.
• Import surge is broad-based.

• Both purchase and refinancing loan applications fell in the latest week.
• Effective interest rates on 30-year fixed-rate loans held steady at 7.20%.
• Average loan size rose to the highest since the November 1 week.