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BOV Market Watch - Week ending 12th June 2020
12 Jun 2020

Eurozone GDP falls less than expected in the first quarter. The decline in the eurozone gross domestic product (GDP) was adjusted slightly upward to -3.6 percent from 3.8 percent initially estimated, data published by Eurostat showed. The decline is nonetheless historic caused, by and large, by domestic lockdowns to combat the coronavirus pandemic. This fall reversed a 0.1 percent growth registered in the fourth quarter of 2019. On a yearly basis, GDP contracted by 3.1 percent, reversing the previous quarter's one percent expansion. The first quarter rate was revised from -3.3 percent and was the largest fall since the third quarter of 2009. Unsurprisingly, the largest decline was seen in the services sector, especially wholesale and retail trade, which also includes accommodation and food service activities. These were hit hard by the lockdowns, falling 6.8 percent quarter-on-quarter.

Fed sees interest rates staying near zero through 2022, GDP bouncing to five percent next year. In its monetary policy meeting on Wednesday, the Federal Reserve (Fed) kept interest rates between zero and 0.25 percent and indicated they are likely to remain that low through 2022 as the economy recovers from the coronavirus pandemic. The Fed also said it will continue to increase its bond holdings, targeting Treasury purchases at $80 billion a month and mortgage-backed securities at $40 billion. Together with the rate decision, the central bank announce that it projects the economy will shrink 6.5 percent in 2020, a year that saw an unprecedented lockdowns in an effort to overcome the coronavirus pandemic. However, 2021 is expected to show a five percent gain followed by 3.5 percent in 2022, both well above the economy’s longer-term trend.

OECD says global economy faces deepest recession since Great Depression. The Organisation for Economic Cooperation and Development (OECD) said the global economy is undergoing the deepest recession since the Great Depression in the 1930s due to the coronavirus pandemic. As restrictions begin to ease, the path to economic recovery remains highly uncertain and vulnerable to a second wave of infections, the Paris-based think tank said in its latest Economic Outlook, published on Wednesday. The OECD expects global economic activity to fall by six percent in 2020 if a second wave of infections is avoided. In this scenario, the world economy would expand by 5.2 percent in 2021. But global GDP would fall more sharply by 7.6 percent this year before rising 2.8 percent next year in case of a second outbreak of virus, triggering a return to lockdowns.

China's factory gate prices fall at faster pace; inflation eases. China's factory gate prices fell further into deflation in May and consumer price growth slowed for the fourth consecutive month, reflecting weak demand despite government measures to boost spending and exports after coronavirus pandemic hit the economy. The country’s producer-price index dropped 3.7 percent in May from a year earlier, China’s National Bureau of Statistics said on Wednesday. May’s fall was bigger than April’s 3.1 percent decline and slightly sharper than economists had expected. On the other hand, consumer price inflation eased to a 14-month low of 2.4 percent in May from 3.3 percent in April, data showed. Prices were expected to climb 2.7 percent. Inflation has been slowing since February. China’s economy continued its slow recovery in May, the earliest indicators showed, with domestic demand gaining momentum even as the global picture remained sluggish.
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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).