Tepid growth suggests further easing in Australia

Australia’s fourth-quarter GDP figures confirm many of the themes that we have been highlighting for a while. Growth remains tepid, incomes are under pressure, and jobs growth is hard to come by. It’s this domestic backdrop that forced the central bank’s hand in February, and we believe there will be more easing in the next few months.

REBOUND IN SPENDING ON SERVICES PAINTS BRIGHTER CONSUMER OUTLOOK

Consumer spending is now moving into high gear, with spending on services rebounding. The key is the labor market, as ongoing gains in employment will directly and indirectly lead to consistent and steady gains in spending on consumer services.

CAN INDIA’S NEWBUDGET RESTORE FISCAL CREDIBILITY?

It’s easy to find fault with India’s new budget, given the high hopes for Prime Minister Modi’s government. But although the plan has taken a gradual approach to reducing the deficit, we think it strikes a good balance between fiscal consolidation and promoting economic growth. Success will depend on the government’s ability to execute the fiscal plan diligently—and to deliver on its promises for reform.

A CONSTRUCTIVE OUTLOOK ON SPAIN

Spain’s economy has recently enjoyed one of the fastest growth rates in the euro area, supported by a rebound in its domestic sector. We believe growth will continue to surpass expectations in 2015, anchored by both structural reform and positive cyclical factors. While medium-term challenges remain, we are constructive on the near-term outlook.

BANK OF CANADA PAUSES FOR NOW

The Bank of Canada kept official rates at 0.75% this week, arguing that “financial conditions in Canada have eased materially” since their late-January rate cut—offsetting the drop in oil prices and encouraging a shift in growth toward non energy exports and investment. We think policymakers will need to ease again: the negative impact from oil’s price plunge continues and there’s no evidence of a material turnaround in other parts of the economy.