ANCHOR OF ECONOMIC

AND FINANCIAL STABILITY

THE ECONOMY
G3 GROWTH LED BY THE US

The US economy rebounded in 2014, with GDP growth rising to 2.4% from 2.2% in the previous year, supported by a virtuous cycle of mutually-reinforcing business activity and household demand. Diminishing spare capacity and a still-accommodative monetary policy environment contributed to an increase in capital expenditure, while stronger employment growth and the recent decline in energy prices boosted consumer spending. Alongside rising household formation, the housing market also saw signs of a stronger revival last year. Even so, in Q1 2015, particularly bad weather, coupled with port closures on the West Coast, disrupted economic activity and contributed to a fall in GDP of 0.2% on a q-o-q seasonally adjusted annualised rate (SAAR) basis.

After two years of mild contraction, the Eurozone returned to growth in 2014, with a full-year expansion of 0.9%. While private consumption recovered modestly and the pace of fiscal consolidation slowed, private investment did not pick up as strongly as expected. Growth was also uneven across the region—even as Italy remained in recession with a contraction of 0.4%, Germany posted relatively more robust growth of 1.6%. Growth momentum continued into 2015, with the region as a whole expanding by a further 1.6% in Q1, on a q-o-q SAAR basis.

Japan's GDP declined by 0.1% in 2014, following a 1.6% expansion in the previous year, as the consumption tax hike implemented in April 2014 led to a sharp pullback in private consumption. Domestic demand picked up towards the end of 2014 as the effects of the tax hike began to wane, while the JPY depreciation provided a boost to exports, helping to lift the economy out of a technical recession in Q4. The recovery gained further traction in Q1 2015, with the economy expanding by 3.9% on a q-o-q SAAR basis.