ANCHOR OF ECONOMIC

AND FINANCIAL STABILITY

THE ECONOMY
A MODERATE G3 RECOVERY

The US economy marked its sixth year of economic expansion in 2015, with total output rising by 2.4%, similar to 2014. Improved consumer confidence on the back of steady employment growth and a strong housing market spurred private consumption and anchored the recovery. The pickup in consumer spending, however, was partly offset by weaker US exports due to the stronger US dollar and tepid global demand. Gross fixed capital formation also eased considerably in the second half of 2015, on account of cutbacks in energy-related investment. The continuation of these trends, coupled with some pullback in consumer expenditure, resulted in sluggish GDP growth of 1.1% on a q-o-q seasonally adjusted annualised rate (SAAR) basis in Q1 2016.

Growth in the Eurozone picked up to 1.6% in 2015, from 0.9% in the previous year, as stronger domestic demand more than compensated for the drag from net exports. Private consumption provided the largest contribution, with household purchasing power boosted by lower energy prices. In comparison, net exports fell, reflecting anaemic demand from China and other emerging economies. Across the Eurozone, growth remained uneven: Spain posted a stellar performance, while Italy and France continued to lag behind the rest of the bloc. Nonetheless, the pace of expansion in the region quickened to 2.2% in Q1 2016 on a q-o-q SAAR basis, in an encouraging start to this year.

Japan's GDP rose modestly by 0.5% in 2015, after staying flat in 2014, as the negative effects of the April 2014 consumption tax hike waned. Nonetheless, the recovery in domestic demand was constrained by subdued private consumption which was, in turn, held down by slower growth in nominal wages. Meanwhile, weak external demand, especially from the Asian markets, weighed further on economic activity. In Q1 2016, growth recovered to 1.9% q-o-q SAAR from −1.8% in Q4 2015, primarily due to a bounce-back in household spending after a weak showing in the previous quarter.