CALENDAR 14 UNITED STATES

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1 CONSENSUS FORECAST Major Economies SUMMARY CALENDAR 1 UNITED STATES 16 CANADA 1 JAPAN UNITED KINGDOM 59 EURO AREA 7 FRANCE 89 GERMANY 1 ITALY 11 NOTES 16 PUBLICATION DATE 1 March 15 FORECASTS COLLECTED March - March 15 INFORMATION AVAILABLE Up to and including March 15 NEXT EDITION 5 May 15 Contributors ARNE POHLMAN Chief Economist ARMANDO CICCARELLI Head of Research RICARDO ACEVES Senior Economist RICARD TORNÉ Senior Economist OLGA COSCODAN Economist CARL KELLY Economist TERESA KERSTING Economist DIRINA MANÇELLARI Economist ANGELA BOUZANIS Economist CECILIA SIMKIEVICH Economist ROBERT HILL Economist ERIC DENIS Economist MIRIAM DOWD Editor

2 .5. World Economic Growth Change in GDP forecasts Global outlook stable REAL SECTOR Developed economies to lead growth in Q1 The global economy expanded at the softest pace since Q 1 in Q. According to a more complete set of data, the global economy expanded.7% in Q over the same quarter last year (previously expected: +.8% year-on-year), which was down from the.9% increase tallied in Q. FocusEconomics panel of analysts expects global growth to pick up slightly to.9% in Q1, mainly fuelled by a healthy performance in the Eurozone and in the United States. Conversely, economic dynamics will soften in emerging markets Contact Q1 1 Q1 1 Q1 1 Q1 15 Q1 16 Nov Feb us Mayfor Aug Nov the Feb latest version: Note: GDP, real annual variation in %, Note: GDP, evolution of 15 and 16 Q1 1 - Q 16. forecasts during the last 18 months..8.6 Recent economic data for the Euro area signal that growth regained momentum in the first quarter. The sharp weakening of the euro and the European Central Bank s bond buying program are bolstering economic sentiment. Politics, however, remain the main risk to the outlook. In the United States, although the harsh winter and the appreciation of the dollar are likely to have taken a toll in Q1, the underlying upward trend remains strong, with the unemployment rate falling to a nearly-seven-year low in February. Despite China s more supportive monetary policy, growth in the country is expected to moderate in the coming quarters in line with the government s new normal approach to growth. Among the rest of the BRIC economies, growth will remain broadly stable in India, while economic activity in Brazil and Russia is expected to be lackluster. Change in GDP Growth Forecasts 15 India Euro area BRIC United Kingdom World China United States Russia 16 India BRIC Euro area World United Kingdom United States China Russia OUTLOOK Global outlook stabilizes on upward revisions to the Euro area and India FocusEconomics Consensus Forecasts panelists maintained their global growth projections for 15 at the previous month s estimate of.1%. Panelists had revised down their forecast last month. The current projection mainly reflects that an upward revision to the outlook for the Eurozone offset downward revisions to the forecasts for Canada, and the United States. The panel made no change to their projections for the BRIC economies nor for the United Kingdom. For 16, an upward revision to the forecasts for the BRIC economies and the Euro area prompted the panel to upgrade their projection by.1 percentage points to.5% Note: Change between and March 15 in percentage points. Source: FocusEconomics Consensus Forecast.. India is expected to be the best performer in 15, slightly surpassing China. India s stellar growth forecast for 15 mainly reflects recent revisions to the national accounts methodology and historical data, which brought panelists to raise India s growth projections by.6 percentage points to 7.1%. Among the other major economies, the United States and the United Kingdom will FocusEconomics Consensus Forecast

3 likely grow the fastest, with a projected expansion of.% and.6%, respectively. At the other end of the spectrum, Italy, and France are likely to be the worst performers. Meanwhile, panelists remain pessimistic about the economic outlook for Brazil and Russia and they expect that both countries will experience a contraction in Q1 1 Q1 1 Q1 Sample 1 Q1 15 Q1 16 Nov Feb Report May Aug Nov Feb Note: GDP, real annual variation in %, Note: GDP, evolution of 15 and 16 Q1 1 - Q 16. forecasts during the last 18 months. 1-1 United States Economic Growth Euro Area Economic Growth Change in GDP forecasts...8 UNITED STATES 15 outlook moderates on harsh winter The U.S. economy has lost some momentum in the first quarter of the year. Harsh winter conditions have put a lid on consumer activity, with retail sales contracting for a third straight month in February. However, with unemployment now down to 5.5% and households effective budgets growing amid low gas prices, consumer demand should rebound and stoke broader economic growth in the months ahead. The low oil price environment has negatively impacted business investment in the energy sector, but investment in other sectors will be supported by accommodative financial conditions. Meanwhile, the pressure exerted on export growth by a strong U.S. dollar and uneven global demand is a long-term downside risk. The U.S. is still expected to be the main engine of global growth this year. Our panel of analysts projects GDP growth of.% in 15, which is down.1 percentage points from last month s forecast. For 16, the panel sees GDP growth at.8%. (see details on page 16) Change in GDP forecasts EURO AREA Low oil prices and weak euro lift sentiment at the outset of the year The Eurozone economy improved in the fourth quarter of 1. Although growth picked up just slightly over the third quarter, recent data provide further evidence that the bloc s economy is gaining momentum at the outset of 15. The composite PMI a closely-watched leading indicator rose to a nearly-four-year high in March and economic sentiment improved in the same month. Businesses and consumers are more upbeat as the euro s slide supports export-oriented manufacturers and borrowers are benefitting from the European Central Bank s ultra-loose monetary policy. - Q1 1 Q1 1 Q1 1 Q1 15 Q1 16 Note: GDP, real annual variation in %, Q1 1 - Q 16. Note: GDP, evolution of 15 and 16 forecasts during the last 18 months. 1. Growth prospects for the Eurozone economy in 15 improved this month, reflecting tailwinds from low oil prices, a weak euro, easing fiscal austerity and stronger signals from the latest leading indicators. FocusEconomics Consensus Forecast panelists raised their projections for 15 this month and now expect the Euro area economy to expand 1.%. Our panel projects economic growth of 1.7% in 16. (see details on page 7) JAPAN Slow progress in structural reforms continues to put a lid on economic outlook The economy rebounded in Q as the negative impact of the VAT hike faded and the weakening of the yen and lower oil prices bolstered business sentiment. More recent economic data suggest that private consumption is now supporting growth, reflecting improvements in the labor market and rising wages. Against this FocusEconomics Consensus Forecast

4 Economic Growth Change in GDP forecasts 1.6 backdrop, consumer confidence hit a six-month high in February. Moreover, despite moderating, the manufacturing PMI remained in expansion mode in March for the 1th consecutive month. - Q1 1 Q1 1 Q1 1 Q1 15 Q1 16 Note: GDP, real annual variation in %, Q1 1 - Q 16. Note: GDP, evolution of 15 and 16 forecasts during the last 18 months Although the low oil price environment and a weak yen are supporting economic growth, the limited progress on implementing the much-needed structural reforms continues to dampen the country s economic outlook. Our panel of analysts projects that GDP will expand.9% in 15, which is down.1 percentage points from the previous month s estimate. The panel projects that economic growth will pick up to 1.5% in 16. (see details on page ) INFLATION Global disinflationary pressures persist The low oil price environment continues to drive down global inflation, with most of the economies posting multi-year low inflation figures in recent months. There are, however, some notable exceptions to this global disinflationary trend. In Brazil, the decision to raise fuel taxes, a severe drought that put a dent in hydroelectric power production, and the weakening of the real brought inflation to hit an over-nine-year high in February. Elsewhere in Latin America, inflation remains stubbornly high in Argentina and Venezuela primarily as a result of mounting domestic challenges. In Russia, a ruble in free fall and spillovers from the tit-for-tat sanctions with the West pushed inflation to a 1-year high at the outset of the year. Against this backdrop, FocusEconomics Consensus Forecast panelists increased their global inflation projections for 15 by.1 percentage points to.5%. For next year, panelists also revised upward their estimates by.1 percentage points and they now expect inflation to rise to.9% in 16. Ricard Torné Senior Economist FocusEconomics Consensus Forecast

5 Quarterly Data Economic Growth and Inflation Q1 1 - Q 16 Gross domestic product ann. var. in % Q1 Q Q Q Q1 Q Q Q Q1 Q Q Q World United States Canada United Kingdom Euro area France Italy BRIC Brazil Russia India China GDP in countries, ann.var. in % GDP in BRIC countries, ann.var. in % 6 1 World United States United Kingdom Euro area World BRIC Brazil Russia India China - -5 Q1 1 Q1 1 Q1 1 Q1 15 Q1 16 Q1 1 Q1 1 Q1 1 Q1 15 Q1 16 Inflation, ann. var. of consumer prices in % Q1 Q Q Q Q1 Q Q Q Q1 Q Q Q World United States Canada United Kingdom Euro area France Italy BRIC Brazil Russia India China Inflation in countries, ann. var. of CPI in % Inflation in BRIC countries, ann. var. of CPI in % 16 1 World BRIC Brazil Russia India China 8 World United States United Kingdom Euro area - Q1 1 Q1 1 Q1 1 Q1 15 Q1 16 Q1 1 Q1 1 Q1 1 Q1 15 Q1 16 FocusEconomics Consensus Forecast 5

6 Quarterly Data Interest Rates Q Q 16 Policy Rate in % Q1 15 Q Q Q Q1 16 Q Q Q World GDP-weighted average GDP-weighted average United States Federal funds target rate Canada Overnight funding rate Overnight call rate United Kingdom Bank rate Euro area ECB refinancing rate BRIC GDP-weighted average Brazil Selic overnight rate Russia 1-week deposit rate India Repo rate China 1-year deposit rate Month Benchmark Rate in % Q1 15 Q Q Q Q1 16 Q Q Q World GDP-weighted average GDP-weighted average United States -month USD LIBOR Canada -month T-bill month Call Rate United Kingdom -month GBP LIBOR Euro area -month EURIBOR Year Bond Yield in % Q1 Q Q Q Q1 Q Q Q World GDP-weighted average GDP-weighted average United States Canada United Kingdom Euro area GDP-weighted average France Italy Policy Rate US, Euro area and in % 1-Year Bond Yield US, Euro area and in %. United States Euro area United States Euro area Q1 1 Q1 1 Q1 1 Q1 15 Q1 16 Q1 1 Q1 1 Q1 1 Q1 15 Q1 16 FocusEconomics Consensus Forecast 6

7 Quarterly Data Exchange Rates Q Q 16 United States Key exchange rates Q1 15 Q Q Q Q1 16 Q Q Q United States USD per EUR Canada CAD per USD JPY per USD United Kingdom USD per GBP Brazil BRL per USD Russia RUB per USD India INR per USD China CNY per USD Euro area Key exchange rates Q1 15 Q Q Q Q1 16 Q Q Q Canada CAD per EUR JPY per EUR United Kingdom GBP per EUR Brazil BRL per EUR Russia RUB per EUR India INR per EUR China CNY per EUR Key exchange rates Q1 15 Q Q Q Q1 16 Q Q Q Canada Sample JPY per CAD Report United Kingdom JPY per GBP Brazil JPY per BRL Russia JPY per RUB India JPY per INR China JPY per CNY USD per EUR 1 JPY per USD Q1 1 Q1 1 Q1 1 Q1 15 Q Q1 1 Q1 1 Q1 1 Q1 15 Q USD per GBP 6. CNY per USD Q1 1 Q1 1 Q1 1 Q1 15 Q Q1 1 Q1 1 Q1 1 Q1 15 Q1 16 FocusEconomics Consensus Forecast 7

8 Gross Domestic Product, annual variation in % World United States Canada United Kingdom Euro area France Italy BRIC Brazil Russia India China India China BRIC World United States United Kingdom Canada Euro area France Italy Brazil Russia GDP Growth, Note: Gross domestic product, real annual variation in %. All data for India refer to fiscal year ending in March. Sources: National statistical institutes. - World United States Euro area BRIC China Private Consumption, annual variation % Private Consumption Growth, China World United States Canada United Kingdom Euro area France Italy BRIC Brazil Russia India China India BRIC United States World United Kingdom Canada Euro area France Italy Brazil Russia Note: Private consumption, real annual variation in %. China data show estimates for real increases based on nominal data. Sources: National statistical institutes. - World United States Euro area BRIC China FocusEconomics Consensus Forecast 8

9 Investment, annual variation in % World United States Canada United Kingdom Euro area France Italy BRIC Brazil Russia India China China BRIC India United States World United Kingdom Euro area Italy France Canada Brazil Russia World United States Euro area BRIC China Exports of Goods and Services, annual variation in % United States Canada United Kingdom Euro area France Italy Investment Growth, Note: Gross fixed investment, real annual variation in %. In the U.S. and, data refer to non-residential fixed investment. In China, nominal urban fixed-asset investment. Sources: National statistical institutes. Canada Euro area France United Kingdom Italy Export Growth, 15 United States Note: Exports of goods and services, real annual variation in %. Sources: National statistical institutes. United States Euro area United Kingdom FocusEconomics Consensus Forecast 9

10 Imports of Goods and Services, annual variation in % United States Canada United Kingdom Euro area France Italy United States Euro area France United Kingdom Import Growth, 15 Italy 8 Canada Note: Imports of goods and services, real annual variation in %. Sources: National statistical institutes. United States Euro area United Kingdom Industrial Production, annual variation % Industrial Production Growth, China World United States Canada United Kingdom Euro area France Italy BRIC Brazil Russia India China BRIC India United States World Canada Euro area United Kingdom France Italy Russia Brazil Note: Industrial production, real annual variation in %. In China, data refer to industrial output of businesses with annual income above million CNY. Sources: National statistical institutes. - World United States Euro area BRIC China FocusEconomics Consensus Forecast 1

11 Unemployment, % of active population World United States Canada United Kingdom Euro area France Italy BRIC Brazil Russia India China Unemployment, 15 Italy Euro area France Canada Russia World Brazil United Kingdom United States BRIC China Fiscal Balance, % of GDP World United States Canada United Kingdom Euro area France Italy BRIC Brazil Russia India China World United States Euro area BRIC China Note: All countries and Brazil show average unemployment rate for the year. Russia shows end-of-year unemployment. China refers to end-of-year urban unemployment. India has no official unemployment statistics. Sources: National statistical institutes. Canada Euro area Russia China United States Italy World BRIC India France United Kingdom Brazil Fiscal Balance, Note: Fiscal balance as % of GDP. Sources: National statistical institutes and finance ministries World United States Euro area BRIC China FocusEconomics Consensus Forecast 11

12 Inflation, annual average variation of consumer prices in % World United States Canada United Kingdom Euro area France Italy BRIC Brazil Russia India China Russia Brazil India BRIC World China Canada United Kingdom United States France Italy Euro area Inflation, Note: Annual average variation of consumer price index in %. Sources: National statistical institutes and central banks. World United States Euro area BRIC China Policy Interest Rate, % World United States Canada United Kingdom Euro area BRIC Brazil Russia India China Brazil Russia India BRIC World China Canada United States United Kingdom Policy Rate, 15 8 Euro area Note: Policy interest rates, end of period. For details see page 6. Sources: National central banks. World United States Euro area BRIC China FocusEconomics Consensus Forecast 1

13 1-Year Bond Yield, % United States Canada United Kingdom Euro area France Italy India China India China United States United Kingdom Canada Euro area Italy France 1-Year Bond Yield, Note: 1-year bond yield in %, end of period. Sources: National central banks. Current Account Balance, % of GDP Current Account Balance, World United States Canada United Kingdom Euro area France Italy BRIC Brazil Russia India China United States Euro area China India Russia Euro area China Italy BRIC France India United States Canada Brazil United Kingdom Note: Current account balance as % of GDP. Sources: National statistical institutes and FocusEconomics calculations United States Euro area BRIC China FocusEconomics Consensus Forecast 1

14 Calendar Economic Release Calendar Date Country Event 1 March Canada January Monthly GDP 1 March Euro area February Unemployment 1 March Euro area March Consumer Prices (*) 1 March Italy March Consumer Prices (*) 1 March United States March Consumer Confidence 1 March United States January S&P/Case-Shiller Home Price Index 1 April Italy March Markit/ADACI Manufacturing PMI 1 April Q1 15 Tankan Business Confidence 1 April United Kingdom March Markit/CIPS Manufacturing PMI 1 April United States March ISM Manufacturing April United States March Unemployment 6 April Canada March Ivey PMI 7 April Central Bank Meeting 7 April Switzerland February Retail Sales 8 April Switzerland March Consumer Prices 9 April February Industrial Production 9 April February Merchandise Trade 9 April United Kingdom Central Bank Meeting 1 April Canada March Housing Starts 1 April France February Industrial Production 1 April United Kingdom February Industrial Production 1 April Italy February Industrial Production 1 April February Machinery Orders 1 April Canada March Teranet House Price Index 1 April Euro area February Industrial Production 1 April Italy March Consumer Prices 1 April United Kingdom March Consumer Prices 1 April United States March Retail Sales 15 April Canada Central Bank Meeting 15 April Euro area Central Bank Meeting 15 April France March Consumer Prices 17 April Canada March Consumer Prices 17 April Euro area March Consumer Prices 17 April March Consumer Confidence 17 April United Kingdom April Unemployment 17 April United States March Consumer Prices April March Merchandise Trade April United Kingdom Minutes of Central Bank Meeting April Euro area April Markit Composite PMI (*) April France April Markit Composite PMI (*) April France April Business Confidence April April Markit Composite PMI (*) April May Consumer Confidence April April Markit/JMMA Manufacturing PMI (*) Preliminary estimate. (**) Approximate date. FocusEconomics Consensus Forecast 1

15 Economic Release Calendar Date Country Event April April Business Confidence 8 April France April Consumer Confidence 8 April United Kingdom Q1 15 National Accounts (*) 8 April United States April Consumer Confidence 8 April United States Febuary S&P/Case-Shiller Home Price Index 9 April Euro area April Economic Sentiment 9 April April Consumer Prices (*) 9 April Italy April Consumer Confidence 9 April Italy April Business Confidence 9 April United States Central Bank Meeting 9 April United States Q1 15 National Accounts (first estimate) April Canada February Monthly GDP April Euro area March Unemployment April Euro area April Consumer Prices (*) April Italy April Consumer Prices (*) April Central Bank Meeting April March Industrial Production April Switzerland April KOF Indicator April United Kingdom April Nationwide House Price Index (**) April United Kingdom April GfK NOP Consumer Confidence (**) 1 May Italy April Markit/ADACI Manufacturing PMI 1 May March Consumer Prices 1 May United Kingdom April Markit/CIPS Manufacturing PMI 1 May United States April ISM Manufacturing May United States April Consumer Prices (*) Preliminary estimate. (**) Approximate date. FocusEconomics Consensus Forecast 15

16 United States United States United States Outlook moderates LONG-TERM TRENDS -year averages Population (million): GDP (USD bn): 16,15 18,111,78 GDP per capita (USD): 51,99 56,87 6,59 GDP growth (%):..7.6 Fiscal Balance (% of GDP): Public Debt (% of GDP): Inflation (%):. 1.. Current Account (% of GDP): The U.S. economy has lost some momentum in the first quarter of the year. Harsh winter conditions have put a lid on consumer activity, with retail sales contracting for a third straight month in February. However, with unemployment now down to 5.5% and households effective budgets growing amid low gas prices, consumer demand should rebound and stoke broader economic growth in the months ahead. The low oil price environment has negatively impacted business investment in the energy sector, but investment in other sectors will be supported by accommodative financial conditions. Meanwhile, the pressure exerted on export growth by a strong U.S. dollar and uneven global demand is a long-term downside risk. The U.S. is still expected to be the main engine of global growth this year. FocusEconomics panelists forecast GDP growth of.% in 15, which is down.1 percentage points from last month s forecast. For 16, the panel sees GDP growth at.8%. Annual consumer prices were flat in February, which was up from the.1% annual decline registered in January. At its March policy meeting, the Fed removed the phrase patient from its guidance as expected, but reiterated that an initial interest rate hike is still data-dependent. Lower growth, inflation and interest rate projections suggest that the pace of rate hikes after take-off will be slower than expected. The FocusEconomics panel expects inflation to average.% in 15 and.% in 16. Carl Kelly Economist ISM Manufacturing Index 6 REAL SECTOR ISM inches down in February, flash PMI ticks up to fivemonth high in March In February, the ISM manufacturing index decreased from the 5.5% recorded in January to 5.9%. The result was roughly in line with market expectations of a moderation to 5.% and marked the lowest reading in just over a year. However, the index remains above the 5.% threshold that indicates expansion in the manufacturing sector. 55 % 5 5 Feb-1 Aug-1 Feb-1 Aug-1 Feb-1 Aug-1 Feb-15 Note: Composite index in the Manufacturing Report on Business (PMI). Readings above 5% indicate an expansion in the manufacturing sector while readings below 5% point to a contraction. Source: Institute for Supply Management (ISM). The index was mainly dragged down by declines in the production and employment categories. New orders also slowed compared to the previous month. In contrast, inventories ticked up in January. More recent survey data point to a moderate strengthening in the manufacturing sector in March. The Markit Flash Manufacturing PMI came in at 55. in March, which was just above the 55.1 tallied in February and marked the highest point since October 1. Manufacturing output expanded at the fastest pace in six months in March. New orders increased the most in five months, although new work from abroad was down mainly due to the strengthening U.S. dollar. Meanwhile, March data show ongoing job creation FocusEconomics Consensus Forecast 16

17 United States in the manufacturing sector, with higher levels of employment being registered for 1 consecutive months. Markit concluded that, manufacturing regained further momentum from the slowdown seen at the turn of the year, with output, new orders and employment growth all accelerating in March. The upturn in order books in particular gives some reassurance that the pace of economic growth is likely to pick up as we move towards the summer. FocusEconomics Consensus Forecast panelists expect that industrial production will increase.6% this year, which is down. percentage points from last month s forecast. For 16, panelists see industrial production expanding.%. The Federal Reserve expects economic growth to range between.% and.7% in both 15 and 16. FocusEconomics Consensus Forecast panelists expect GDP to expand.% in 15, which is down.1 percentage points from last month s forecast. For 16, the panel expects the economy to expand.8%. Retail Sales variation in %. 1. % Month-on-month (left scale) 6... REAL SECTOR Retail sales fall for third straight month in February In February, retail sales decreased.6% over the previous month, in nominal terms. The print followed the.8% decrease recorded in January and contrasted market expectations of a.% increase. Retail sales had not registered three consecutive monthly contractions for more than five years. Analysts point to the cold winter weather as the main factor behind the falling consumer activity and suggest that first quarter GDP could suffer as a result. Retail sales are a good indicator for the evolution of consumer spending, a key part of economic growth in the United States, as it accounts for over two thirds of overall GDP. Year-on-year (right scale) % February s result was driven by a drop in sales at motor vehicle and parts dealers as well as building material and garden supply stores. Sales were also down at department stores and electronics and appliance retailers. Consumers are not spending more despite having additional discretionary income derived from low gasoline prices. -.. Feb-1 Aug-1 Feb-1 Aug-1 Feb-15 Note: Month-on-month and year-on-year variation of nominal retail sales in %. Source: United States Census Bureau. Retail sales excluding cars and gas a closely watched subcategory of the retail trade index decreased.% in February over the previous month. The result followed the.1% decrease recorded in January and contrasted the.5% increase expected by the market. Retail sales rose 1.7% in annual terms in February, which came in well below the.6% tallied in January. However, the annual trend was steady, with annual average growth in retail sales holding at January s.1%. FocusEconomics Consensus Forecast panelists expect private consumption to grow.% in 15, which is unchanged from last month s forecast. For 16, the panel sees private consumption increasing.9%. REAL SECTOR Payrolls extend strong streak and unemployment falls to 5.5% Non-farm payrolls grew by 95, in February, which was above January s downward revised increase of 9, (previously reported: +57,). Moreover, the reading overshot market expectations of a, increase in FocusEconomics Consensus Forecast 17

18 United States payrolls and marked the 1th consecutive month of gains above,, the longest such streak since the mid-199s. Labour Market 5 Var. in non-farm payrolls (left scale) Unemployment rate (right scale) 1 5. Feb-1 Aug-1 Feb-1 Aug-1 Feb-15 Note: Month-on-month variation of non-farm payrolls in thousands and unemployment rate, seasonally adjusted in %. Source: Bureau of Labor Statistics % The private sector was almost entirely responsible for new hiring, having added 88, jobs in February. The largest gains were registered in leisure and hospitality, professional business services, education and health services, retail, and construction. The public sector gained 7, jobs. The U.S. economy now has.8 million more people employed than at the precrisis January 8 peak. The unemployment rate derived from a different survey decreased from 5.7% in January to 5.5% in February, which marked the best result since May 8. The market had expected the unemployment rate to fall to 5.6%. February s result brings the unemployment rate into the Fed s target zone of 5.%-5-5%, reflects ongoing economic growth and will put further pressure on the Fed to begin raising interest rates. However, the labor market may not be as strong as the headline numbers suggest. Labor participation rates still remain notably low and while average hourly earnings inched up in February, wage growth has been largely stagnant over the past months. Inflation Consumer Price Index 1..5 %.. FocusEconomics Consensus Forecast panelists expect unemployment to average 5.% in 15, which is unchanged from last month s forecast. For 16, the panel expects the unemployment rate to drop to 5.%. MONETARY SECTOR Consumer prices flat in February after worrisome decline in January, core inflationary pressures still weak In February, consumer prices increased.% over the previous month in seasonally-adjusted terms. The print, which was in line with market expectations, marked a turnaround from the six-year low.7% decrease tallied in January. Moreover, it was the first increase in four months and the highest figures since May of last year. February s reading was mainly driven by an increase in energy prices, including gasoline, which contrasted the steep drop recorded in this category the previous month. %. -.5 Month-on-month (left scale) Year-on-year (right scale) Feb-1 Aug-1 Feb-1 Aug-1 Feb-15 Note: Year-on-year and month-on-month variation of seasonally adjusted consumer price index in %. Source: Bureau of Labor Statistics. 1.. Annual consumer prices were flat in February, which was up from the.1% annual decline seen in January, and therefore exited deflationary territory. Meanwhile, core consumer prices, which exclude food and energy prices, increased.% over the previous month, which matched the result observed in January. The figure was just above market expectations of a.1% increase. Annual average core inflation in February held at January s 1.8%. FocusEconomics Consensus Forecast participants expect inflation to average.% in 15, which is down. percentage points from last month s forecast. For 16, the panel expects inflation to average.%. MONETARY SECTOR Fed drops patient from guidance, but first rate hike still depends on economic developments At its March policy meeting, the Fed s Open Market Committee (FOMC) made a small modification to its guidance that reinforces the notion that a hike in the federal funds target rate is forthcoming. The Fed removed the phrase patient from its statement as expected, but also explained that the decision to begin raising rates is still data dependent and will happen on a meeting-by-meeting basis. Concerns over weak inflation and the impact of global developments on growth, as well as lower median rate projections, suggest that the first rate hike will come later in the second half of the year FocusEconomics Consensus Forecast 18

19 United States and that the rate of subsequent hikes will be less aggressive than previously expected. The Fed has been avoiding a fixed timeline as it believes the low interest rates are providing important support for the economy and because it wants to be able to respond flexibly to any changes in the economic scenario. The Fed s accompanying statement gave a slightly less upbeat assessment of the economy compared to last meeting. According to the Fed, the pace of economic growth has moderated somewhat in the past two months. There have been further gains in the labor market, household spending is on the rise due to increased purchasing power resulting from low energy prices, and business investment is advancing. However, the Fed did point out that export growth has taken a hit, presumably because of the dollar s growing strength against other currencies. Committee members also downgraded their growth forecasts. GDP is now expected to increase between.% and.7% in both 15 and 16, which is down from the.6%-.% and.5%-.% projections made in December. Monetary Policy.. % Sample 1. Total Assets (USD bn, right scale) Federal Funds Target Rate (%, left scale) Report. Jan-1 Jul-1 Jan-11 Jul-11 Jan-1 Jul-1 Jan-1 Jul-1 Jan-1 Jul-1 Jan-15 Note: Total assets in the balance sheet of the Federal Reserve in USD billion and Federal Funds Target Rate in %. Current rate set at a range of between % and.5%. Source: Federal Reserve. 5 In terms of prices developments, monetary authorities explained that inflation has, declined further below the Committee s longer-run objective, due in large part to declining energy prices. Market-based measured of inflation are low, survey-based measures of longer-term inflation expectations remain stable and the effects of lower energy prices are projected to be transitory. Nonetheless, there seems to be doubt about the path inflation will follow going forward. In fact, committee members lowered their inflation forecast for this year from a range of 1.%-1.6% in December to.6%-.8% in January. In order to avoid a loss of momentum in the economy and stoke inflationary pressures, the FOMC confirmed that the federal funds target rate would remain within the current range of between.% and.5%. The Fed emphasized once again that decisions to hike the rate still depend on the assessment of a, wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee stated that it will not raise rates until there have been further improvements in the labor market and until it is reasonably confident that inflation will move back to its.% objective. The Fed essentially ruled out a rate hike at its next meeting in April. Moreover, given its lower growth and inflation projections, it is likely to hold again in June, with a first move coming perhaps at the following gathering in September. Fifteen of 17 committee members believe that it will be appropriate to make a rate policy change sometime this year. However, the median projection made by committee members in a supplementary document released after the meeting is for rates to reach.65% by the end of 15, which is down significantly from the 1.15% median projection made in December. The median projection is for rates to reach 1.875% by the end of 16, which is below the.5% median projection from December. This suggests that the pace of rate hikes after take-off will be slower than expected. Joseph Song, U.S. Economist at Nomura, shares the following insight: On balance, the outcome of the March FOMC meeting was more dovish (i.e. notable downshift in the economic and interest rate outlook) than we had anticipated. It s clear that the center of gravity for liftoff has firmly shifted towards September, in line with our call. But the FOMC is not on autopilot. With the changes to its forward FocusEconomics Consensus Forecast 19

20 United States guidance, the FOMC appears to be ready to adjust the course of policy in response to economic developments. In other words, the FOMC really will be data dependent. FocusEconomics Consensus Forecast panelists expect the Fed to hike interest rates at some point later this year. Roughly a third of the panelists surveyed expect the Fed to raise interest rates as early as Q. The vast majority of panelists project the Fed will raise rates by Q 15, with an average forecast of.5%. The panel sees the federal funds rate averaging.7% at the end of 15 and project that it will increase to 1.99% by the end of 16. FocusEconomics Consensus Forecast

21 United States Economic Indicators 1-19 Annual Data Real Sector Population (million) GDP per capita (USD) 8,1 9,76 51,5 5,1 5,687 56,18 58,595 61, 6,5 66,197 GDP (USD bn) 1,96 15,518 16,16 16,768 17,19 18,9 18,9 19,8,76 1,769 Economic Growth (Nominal GDP, ann. var. in %) Economic Growth (GDP, annual var. in %) Domestic Demand (annual variation in %) Private Consumption (annual var. in %) Government Consumption (annual var. in %) Fixed Investment (annual variation in %) Non-residential Investment (ann. var. in %) Residential Investment (ann. variation in %) Exports (G&S, annual variation in %) Imports (G&S, annual variation in %) Industrial Production (annual variation in %) Retail Sales (annual variation in %) Light Vehicle Sales (million) Housing Starts (million) S&P/Case-Shiller Home Prices (var. in %) Unemployment (% of active population, aop) Fiscal Balance (Federal, % of GDP) Public Debt (% of GDP) Monetary and Financial Sector Money (annual variation of M in %) Inflation (CPI, annual Sample variation in %, eop) Report Inflation (CPI, annual variation in %, aop) Inflation (Core, annual variation in %, aop) Inflation (PPI, annual variation in %, aop) Federal Funds Target Rate (%, eop) Month LIBOR rate (%, eop) Year Bond Yield (%, eop) Exchange Rate Contact (USD per EUR, eop) us for 1. the 1. latest version: Exchange Rate (USD per EUR, aop) External Sector Current Account Balance (% of GDP) Current Account Balance (USD bn) Trade Balance (USD bn) Quarterly Data Q 1 Q 1 Q1 15 Q 15 Q 15 Q 15 Q1 16 Q 16 Q 16 Q 16 Economic Growth (GDP, annual var. in %) Economic Growth (GDP, saar in %) Private Consumption (saar in %) Non-residential Investment (saar in %) Exports (G&S, saar in %) Imports (G&S, saar in %) Unemployment (% of active population, aop) Inflation (CPI, annual variation in %, aop) Federal Funds Target Rate (%, eop) Month LIBOR rate (%, eop) Year Bond Yield (%, eop) Exchange Rate (USD per EUR, eop) Current Account Balance (% of GDP) Current Account Balance (USD bn) Monthly Data Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-15 Feb-15 Mar-15 Industrial Production (s.a. mom var. in %) Retail Sales (s.a. mom nominal variation in %) Unemployment (% of active population) Conference Board Consumer Confidence ISM Manufacturing Index (5%-threshold) Markit Manufacturing PMI (5 threshold) S&P/Case-Shiller -City (annual var. in %) Housing Starts (millions of units, saar) Existing Home Sales (millions of units, saar) Inflation (CPI, mom variation in %) Inflation (CPI, annual variation in %) Exchange Rate (USD per EUR, eop) Trade Balance (G&S, USD bn) FocusEconomics Consensus Forecast 1

22 Real Sector Gross Domestic Product United States 1 Real GDP -19 var. in % GDP 15 evolution of forecasts 8% 6% % % % United States World Real GDP Q1 1-Q 16 var. in % 6 United States - Q1 1 Q1 1 Q1 1 Q1 15 Q1 16 GDP 16 evolution of forecasts < >.1 Real GDP growth in % Maximum Maximum Consensus Consensus Minimum Minimum 1 1 Nov Feb May Contact Aug Nov Feb us Novfor Feb Maythe Aug Nov latest Feb version: 5 GDP 15 Panelist Distribution Individual Forecasts Allianz..5 BBVA Research.9.8 Berenberg.8.9 BMO Capital Markets..6 BNP Paribas..8 CIBC World Markets.9. Citigroup Global Mkts.1. Commerzbank..8 Credit Agricole..8 Credit Suisse..9 DekaBank.9.9 Deutsche Bank..1 DIW Berlin.1. EIU..5 Frontier Strategy Group..9 Goldman Sachs.8. Holding Monex.5.1 ING..9 Intesa Sanpaolo.. JPMorgan.7.5 Julius Baer.. Lloyds TSB.. Macroeconomic Advisers..1 Nomura.7.5 Nordea..9 Oxford Economics..8 Raiffeisen Research.. RBC Capital Markets.1.9 Scotiabank..9 Standard Chartered.6. Toronto-Dominion Bank..8 UBS.8.8 Unicredit..6 Minimum.5.1 Maximum.. Median..9 Consensus..8 History days ago days ago..8 9 days ago..8 Additional Forecasts Federal Reserve (Mar. 15) IMF (Jan. 15).6. Long-term chart period from to 19 unless otherwise stated. All real sector data are from the Bureau of Economic Analysis (BEA). Forecasts based on FocusEconomics Consensus Forecast. 1 GDP, annual variation in %. Quarterly GDP (seasonally adjusted), quarter-on-quarter annualized variation in %. GDP, evolution of 15 forecasts during the last 18 months. GDP, evolution of 16 forecasts during the last 18 months. 5 GDP, panelist distribution of 15 forecasts. Concentration of panelists in forecast interval in %. Higher columns with darker colors represent a larger number of panelists. FocusEconomics Consensus Forecast

23 Real Sector Additional forecasts United States Consumption and Investment Consumption Investment variation in % variation in % Individual Forecasts Allianz BBVA Research Berenberg BMO Capital Markets.... BNP Paribas CIBC World Markets Citigroup Global Mkts Commerzbank Credit Agricole Credit Suisse...5. DekaBank Deutsche Bank DIW Berlin EIU Frontier Strategy Group Goldman Sachs Holding Monex ING Intesa Sanpaolo JPMorgan Julius Baer Lloyds TSB Macroeconomic Advisers Nomura Nordea Oxford Economics Raiffeisen Research RBC Capital Markets Scotiabank Standard Chartered Toronto-Dominion Bank UBS Unicredit Minimum Maximum Median Consensus History days ago days ago days ago Consumption variation in % Consumption evolution of fcst Investment variation in % 1-1 United States United States Investment evol. of forecasts Long-term chart period from to 19 unless otherwise stated. All real sector data are from the Bureau of Economic Analysis (BEA). Forecasts based on FocusEconomics Consensus Forecast. 6 Private consumption, annual variation in %. 7 Private consumption, evolution of 15 and 16 forecasts during the last 18 months. 8 Non-residential fixed investment, annual variation in %. 9 Non-residential fixed investment, evol. of 15 and 16 forecasts during the last 18 months FocusEconomics Consensus Forecast

24 Real Sector Additional forecasts United States Exports and Imports Exports Imports variation in % variation in % Individual Forecasts Allianz BBVA Research Berenberg BMO Capital Markets BNP Paribas CIBC World Markets Citigroup Global Mkts Commerzbank Credit Agricole Credit Suisse DekaBank Deutsche Bank DIW Berlin EIU Frontier Strategy Group Goldman Sachs Holding Monex ING Intesa Sanpaolo JPMorgan Julius Baer Lloyds TSB Macroeconomic Advisers Nomura Nordea Oxford Economics Raiffeisen Research RBC Capital Markets Scotiabank Standard Chartered Toronto-Dominion Bank UBS Unicredit Minimum Maximum Median Consensus History days ago days ago days ago Exports variation in % Imports variation in % 1-1 United States 11 Exports evolution of fcst United States Imports evol. of forecasts Long-term chart period from to 19 unless otherwise stated. All real sector data are from the Bureau of Economic Analysis (BEA). Forecasts based on FocusEconomics Consensus Forecast. 1 Real exports of goods and services, annual variation in %. 11 Exports, evolution of 15 and 16 forecasts during the last 18 months. 1 Real imports of goods and services, annual variation in %. 1 Imports, evolution of 15 and 16 forecasts during the last 18 months FocusEconomics Consensus Forecast

25 Real Sector Additional forecasts United States Industry and Unemployment Industry Unemployment variation in % % of active pop. Individual Forecasts Allianz BBVA Research Berenberg BMO Capital Markets BNP Paribas CIBC World Markets Citigroup Global Mkts Commerzbank Credit Agricole Credit Suisse DekaBank Deutsche Bank DIW Berlin EIU Frontier Strategy Group Goldman Sachs Holding Monex ING Intesa Sanpaolo JPMorgan Julius Baer Lloyds TSB Macroeconomic Advisers Nomura Nordea Oxford Economics Raiffeisen Research RBC Capital Markets Scotiabank Standard Chartered Toronto-Dominion Bank UBS Unicredit Minimum Maximum Median Consensus History days ago days ago days ago Industry variation in % Unemployment % of active pop United States 15 Industry evol. of forecasts. United States Unemployment evol. of forecasts Long-term chart period from to 19 unless otherwise stated. All real sector data are from the Bureau of Economic Analysis (BEA) and the Bureau of Labor Statistics (BLS). See below for details. Forecasts based on FocusEconomics Consensus Forecast. 1 Industrial production, annual variation in %. Source: BEA. 15 Industrial production, evolution of 15 and 16 forecasts during the last 18 months. 16 Unemployment, % of active population. Source: BLS. 17 Unemployment, evolution of 15 and 16 forecasts during the last 18 months FocusEconomics Consensus Forecast 5

26 Real Sector Additional forecasts United States Fiscal Balance and Public Debt Fiscal Balance Public Debt % of GDP % of GDP Individual Forecasts Allianz BBVA Research Berenberg BMO Capital Markets BNP Paribas CIBC World Markets Citigroup Global Mkts Commerzbank Credit Agricole Credit Suisse DekaBank Deutsche Bank DIW Berlin EIU Frontier Strategy Group Goldman Sachs Holding Monex ING Intesa Sanpaolo JPMorgan Julius Baer Lloyds TSB Macroeconomic Advisers Nomura Nordea Oxford Economics Raiffeisen Research RBC Capital Markets Scotiabank Standard Chartered Toronto-Dominion Bank UBS Unicredit Minimum Maximum Median Consensus History days ago days ago days ago Fiscal Balance % of GDP Public Debt % of GDP United States 19 Fiscal Balance evol. of forecasts -. United States Public Debt evol. of forecasts Long-term chart period from to 19 unless otherwise stated. All real sector data are from the Bureau of Economic Analysis (BEA). Forecasts based on FocusEconomics Consensus Forecast. 18 Federal government balance as % of GDP. 19 Federal government balance as % of GDP, evolution of 15 and 16 forecasts during the last 18 months. Public debt as % of GDP. 1 Public debt as % of GDP, evolution of 15 and 16 forecasts during the last 18 months. 1 1 FocusEconomics Consensus Forecast 6

27 Monetary Sector Inflation United States Inflation - 19 in % Inflation 15 evol. of forecasts Inflation 15 Panelist Distribution 8% 6% % % United States Inflation Q1 1-Q 16 in % 5 Inflation 16 evol. of forecasts 1 United States -1 Q1 1 Q1 1 Q1 1 Q1 15 Q Sample Report Maximum 1 Maximum Consensus Consensus Minimum Minimum -1 Nov Feb May Contact Aug Nov Feb us Novfor Feb Maythe Aug Nov latest Feb version: Inflation annual variation of consumer price index in % Individual Forecasts Allianz.. BBVA Research Berenberg BMO Capital Markets.. BNP Paribas.. CIBC World Markets.5.8 Citigroup Global Mkts - - Commerzbank.. Credit Agricole -.1. Credit Suisse. - DekaBank 1..7 Deutsche Bank.6.6 DIW Berlin EIU.5. Frontier Strategy Group Goldman Sachs..1 Holding Monex.1.6 ING.1. Intesa Sanpaolo JPMorgan. - Julius Baer Lloyds TSB.. Macroeconomic Advisers.. Nomura..1 Nordea..6 Oxford Economics.. Raiffeisen Research.. RBC Capital Markets.5.8 Scotiabank.6. Standard Chartered Toronto-Dominion Bank..6 UBS Unicredit -.6. Minimum Maximum 1.5. Median.. Consensus.. History days ago.6. 6 days ago.9. 9 days ago 1.. Additional Forecasts IMF (Oct. 1).1.1 % < > 5. Long-term chart period from to 19 unless otherwise stated. All monetary sector data are from the Bureau of Labor Statisics (BLS). Forecasts are based on FocusEconomics Consensus Forecast. Inflation, annual average variation of consumer price index (CPI) in %. Inflation, annual variation of quarterly average consumer price index (CPI) in %. Inflation, evolution of 15 forecasts during the last 18 months. 5 Inflation, evolution of 16 forecasts during the last 18 months. 6 Inflation, panelist distribution of 15 forecasts. Concentration of panelists in forecast interval in %. Higher columns with darker colors represent a larger number of panelists. FocusEconomics Consensus Forecast 7

28 Monetary Sector Interest Rates United States 7 Policy Rate in % Policy Rate, Benchmark Rate and 1-Year Bond Yield 8 Fed Funds -Month USD 1-Year Bond United States Target Rate in % LIBOR in % Yield in % Individual Forecasts 6 Allianz BBVA Research Berenberg BMO Capital Markets BNP Paribas CIBC World Markets Citigroup Global Mkts Commerzbank Credit Agricole Credit Suisse DekaBank Deutsche Bank DIW Berlin Policy Rate evol. of forecasts EIU Frontier Strategy Group Goldman Sachs Holding Monex ING Intesa Sanpaolo JPMorgan Sample Julius Report Baer Lloyds TSB Macroeconomic Advisers Nomura Nordea Oxford Economics Raiffeisen Research RBC Capital Markets Scotiabank Standard Chartered Toronto-Dominion Bank Year Bond Yield % UBS Unicredit United States 5 Minimum Maximum Median Consensus History days ago days ago days ago Year Bond Yield evol. of fcst Long-term chart period from to 19 unless otherwise stated. All monetary data are from the Federal Reserve Board (Fed). Variation in forecasts for federal funds target rate partly reflects current range of between % and.5% determined by the Fed. Forecasts based on FocusEconomics Consensus Forecast. 7 Federal funds target rate in %. 8 Federal funds target rate in %, evol. of 15 and 16 forecasts during the last 18 months. 9 1-year benchmark bond yield (eop). 1-year benchmark bond yield, evolution of 15 and 16 forecasts during the last 18 months. FocusEconomics Consensus Forecast 8

29 External Sector Current Account Balance United States 6 Current Account % of GDP Current Account 15 evol. of fcst -1 - Current Account 15 Panelist Distribution 5% % % % 1% United States 7 Curr Account Q1 1-Q 16 % of GDP Q1 1 Q1 1 Q1 1 Q1 15 Q Current Account 16 evol. of fcst -1 Maximum Consensus Minimum Current Account Balance % of GDP Sample - Report - - Maximum Consensus Minimum - - Nov Feb May Contact Aug Nov Feb us Nov for Feb May the Aug Novlatest Feb version: Individual Forecasts Allianz BBVA Research Berenberg BMO Capital Markets BNP Paribas CIBC World Markets Citigroup Global Mkts Commerzbank Credit Agricole Credit Suisse -. - DekaBank Deutsche Bank DIW Berlin - - EIU Frontier Strategy Group - - Goldman Sachs - - Holding Monex - - ING - - Intesa Sanpaolo JPMorgan - - Julius Baer - - Lloyds TSB - - Macroeconomic Advisers - - Nomura Nordea Oxford Economics Raiffeisen Research RBC Capital Markets Scotiabank Standard Chartered Toronto-Dominion Bank UBS Unicredit Minimum Maximum Median Consensus History days ago days ago days ago % < > -.6 Long-term chart period from to 19 unless otherwise stated. All external sector data are from the Bureau of Economic Analysis (BEA). Forecasts based on FocusEconomics Consensus Forecast. 6 Current account balance as % of GDP. 7 -quarter moving average of current account balance as % of GDP. 8 Current account balance as % of GDP, evolution of 15 forecasts during the last 18 months. 9 Current account balance as % of GDP, evolution of 16 forecasts during the last 18 months. Current account balance as % of GDP, panelist distribution of 15 forecasts. Concentration of panelists in forecast interval in %. Higher columns with darker colors represent a larger number of panelists. FocusEconomics Consensus Forecast 9

30 Fact Sheet United States General Data United States in the Region Official name: United States of America Capital: Washington D.C. (.m) Other cities: New York (19.m) Los Angeles (1.6m) Area (km): 9,86,675 Population (million, 1 est.): 19 Population density (per km, 1):. Population growth rate (%, 1 est.):.8 Life expectancy (years, 1 est.): 79.6 Illiteracy rate (%, ): 1. Language: English Measures: U.S. customary units Time: GMT-5 to GMT-1 United Kingdom 8.6% Population %-share in France 8.5% 1.8% Canada Italy.7% 8.% 16.9% United States.% United Kingdom 8.% 1.8% GDP %-share in Canada 5.% Italy 6.% France 8.% 1.% United States 9.% Economic Infrastructure Telecommunication (1) Telephones - main lines (per 1 inhabitants):. Telephones - mobile cellular (per 1 inhabit.): 96 Internet Users (per 1 inhabitants): 8. Broadband Subscriptions (per 1 inhabitants): Energy (1) Primary Energy Production (trillion Btu): 79,1 Primary Energy Consumption (trillion Btu): 95,58 Electricity Generation (billion kw-h):,8 Electricity Consumption (billion kw-h):,8 Oil Supply (thousand bpd): 11,119 Economic Structure GDP by Sector share in % GDP by Expenditure share in % Other Industry Services - Oil Consumption (thousand bpd): 18,9 CO Emmissions (million metric tons): 5,7 Transportation (1) Airports: 1,51 Railways (km):,79 Roadways (km): 6,586,61 Waterways (km): 1,9 Chief Ports: Los Angeles, New York, Savannah Trade Structure Agriculture Manufacturing Primary markets share in % Net Exports Investment Government Consumption Private Consumption Political Data President: Barack Hussein Obama Last elections: 6 November 1 Next elections: 8 November 16 Central Bank Governor: Janet Yellen Long-term Foreign Currency Ratings Agency Rating Outlook Moody s: Aaa Stable S&P: AA+ Stable Fitch Ratings: AAA Stable Mexico 1.% Other 17.9% Other LatAm 11.% Exports China 7.% Canada 18.9% Other Asia ex- 1.7% EU-7 17.% Mexico 1.% Other LatAm 7.% Other 1.7% China 19.% Primary products share in % Imports Canada 1.1% Other Asia ex- 1.7% 6.% EU % Strengths Growing energy self sufficiency Strong domestic market Diversified economy Flexible job market Weaknesses High public debt Persistent current account deficit High household debt Mineral Fuels 1.% Food 1.1% Exports Other 16.5% Mineral Fuels 18.7% Food 5.1% Other 6.% Imports Manufact. Products 6.% Manufact. Products 69.9% FocusEconomics Consensus Forecast

31 Canada Canada Canada Outlook moderates LONG-TERM TRENDS -year averages Population (million): GDP (USD bn): 1,8 1,71 1,98 GDP per capita (USD): 5, 7,79 5,79 GDP growth (%):... Fiscal Balance (% of GDP): Inflation (%): Current Account (% of GDP): After posting robust growth rates in the second and third quarters last year, the Canadian economy slowed in the three months through December. Economic activity grew at a seasonally adjusted annualized rate (SAAR) of.%, which was well below the.% expansion tallied in Q. In Q, exports failed to benefit from a weaker currency and became a drag on growth. Moreover, a range of monthly indicators from the start of 15 indicate a further deceleration of the economy in Q1. In February, the Ivey PMI pointed to a contraction in the manufacturing sector for the second consecutive month and housing starts fell to the lowest level in over five years. The drastic drop in oil prices will most likely have a negative impact on government revenues and business investment. However, a weaker currency coupled with increasing external demand from the United States should bode well for economic growth looking forward. FocusEconomics Consensus Forecast panelists expect the economy to expand.1% in 15, which is down.1 percentage points from last month s forecast. For 16, the panel foresees economic growth of.%. In February, inflation was stable at January s 1.%. Inflation pressures are expected to moderate further in the coming months due to lower global oil prices and a decelerating economy. Panelists expect inflation to average 1.% in 15, which is down. percentage points from last month s estimate. For 16, the panel projects that inflation will pick up and average.1%. Dirina Mançellari Economist Gross Domestic Product variation in % Quarter-on-quarter saar (left scale) Year-on-year (right scale) % % -. Q1 11 Q1 1 Q1 1 Q1 1 Q1 15 Note: Quarter-on-quarter changes of seasonally adjusted annualized GDP and year-on-year variation in %. Source: Statistics Canada (SC) and FocusEconomics Consensus Forecast REAL SECTOR Economic growth slows in Q In the fourth quarter, GDP increased at a seasonally adjusted annualized rate (SAAR) of.% over the previous quarter. The result came in below the.% expansion recorded in the third quarter but exceeded market expectations of a.% increase. In the full year 1, the economy grew.5%, which was up from the.% increase seen in 1. The slowdown in Q was driven by a deceleration in both domestic demand and the external sector. Private consumption grew.% in Q, which was down from the.6% increase seen in the previous quarter. In addition, fixed investment contracted.% in the fourth quarter, which contrasted the 6.% increase observed in Q. Contrary, government consumption rebounded from a.% contraction in Q to a.1% expansion in Q, thus marking the fastest increase since Q1 1. In the external sector, exports of goods and services fell 1.6% in Q, which was a deterioration over the 8.9% increase seen in the previous quarter. In addition, imports slowed from a.% increase in Q to a 1.7% rise in Q. As a result, the external sector s net contribution to overall growth deteriorated from plus 1.5 percentage points in Q to minus 1.1 percentage points in Q, which marked the least contribution since Q 1. FocusEconomics Consensus Forecast 1

32 Canada According to its January Monetary Policy Report, the Central Bank projects that the economy will grow.1% in 15 and.% in 16. FocusEconomics Consensus Forecast panelists expect the economy to grow.1% in 15, which is down.1 percentage points from last month s estimate. For 16, the panel expects the economy to also expand.%. Purchasing Managers Index OUTLOOK PMI improves in February The Ivey Purchasing Managers Index (PMI), which is sponsored by the Richard Ivey School of Business and the Purchasing Management Association of Canada, rose a seasonally-adjusted. points, from January s 5. points to 9.7 points in February. The increase contrasted the 1.-point decrease recorded in January. The print overshot the 8.5 points expected by the market. As a result, the volatile index is now closer to the 5-point threshold that indicates expansion in the manufacturing sector. Feb-1 Aug-1 Feb-1 Aug-1 Feb-1 Aug-1 Feb-15 Note: Ivey Purchasing Managers Index. A reading above 5 points indicates an expansion in the manufacturing sector while a value below 5 points indicates a contraction. Source: Richard Ivey School of Business and the Purchasing Management Association of Canada. Housing Starts Thousands of units 5 FocusEconomics Consensus Forecast panelists see industrial production expanding 1.5% in 15, which is up.1 percentage points from last month s forecast. For 16, the panel expects industrial production growth of.%. HOUSING Housing starts plummet in February Seasonally-adjusted annualized housing starts registered 156, units in February, according to the government-owned Canada Mortgage and Housing Corporation (CMHC). The figure marked a 16.% decrease over January s 187, units and notably undershot market expectations of 179, units. The drop marked the sharpest decrease since March of last year and was driven largely by a drop in multiple urban starts. The six-month moving average fell by.5% over the previous month, from January s 188,8 average to 18,1 in February, thus reaching the lowest level since June 1. The CMHC commented that, [t]he declining trend in multiple starts is helping to gradually erode the inventory of completed and unsold units, which is high compared to historical levels. 15 Feb-1 Aug-1 Feb-1 Aug-1 Feb-1 Aug-1 Feb-15 Note: Monthly housing starts at seasonally-adjusted annualized units. Source: Canada Mortgage and Housing Corporation (CMHC). According to its Q Housing Market Outlook, the CMHC estimates that housing starts will record 189,5 units in 15 and 187, units in 16. FocusEconomics Consensus Forecast participants expect 181,76 housing starts in 15. For 16, the panel sees housing starts moderating to 181,8 units. Housing Prices HOUSING Housing prices ease in February The Teranet-National Bank National Composite House Price index rose.1% in February over the previous month. The result followed January s.% increase. The countrywide index inched up to points in February from January s 167. points %. Month-on-month s.a. (left scale) Year-on-year (right scale) -.5. Feb-1 Aug-1 Feb-1 Aug-1 Feb-15 Note: Monthly and annual variation of the Teranet-National Bank House Price Index in %. Source: Teranet and National Bank of Canada and FocusEconomics calculations..5. % 1.5 Regarding regional developments, housing prices increased in 5 of the 11 metropolitan markets surveyed, with the largest increases recorded in Vancouver and Victoria. On an annual basis, house prices rose.% in February, which was below January s.7% gain and marked the slowest increase in over a year. MONETARY SECTOR Inflation stable in February In February, consumer prices rose a seasonally-adjusted.% over the previous month, which contrasted January s.% drop. According to Statistics Canada, the increase came on the back of higher prices for transportation. FocusEconomics Consensus Forecast

33 Canada Inflation Consumer Price Index 1. Month-on-month s.a. (left scale) Year-on-year (right scale).5 %.. % Annual headline inflation in February was stable at January s 1.%, thus remaining at the lowest level in over a year. As a result, inflation is at the lower bound of the Central Bank s tolerance margin of plus/minus 1. percentage points around its target of.%. Annual average inflation in February was also stable at January s 1.9%. Annual core inflation, which excludes volatile items such as gasoline and fresh food, inched down from.% in January to.1% in February, thus marking the lowest rate in six months Feb-1 Aug-1 Feb-1 Aug-1 Feb-15 Note: Year-on-year and month-on-month variation of seasonally adjusted consumer price index in %. Source: Statistics Canada (SC) and FocusEconomics calculations. Target for the Overnight Rate in % %.5. Jan-1 Jul-1 Jan-11 Jul-11 Jan-1 Jul-1 Jan-1 Jul-1 Jan-1 Jul-1 Jan-15 Note: Quarter-on-quarter changes of seasonally adjusted annualized GDP and year-on-year variation in %. Source: Statistics Canada (SC) and FocusEconomics Consensus Forecast.. According to its January Monetary Policy Report, the Bank of Canada expects headline inflation to average 1.% in 15 and.% in 16. FocusEconomics Consensus Forecast panelists expect inflation to average 1.% in 15, which is down. percentage points from the previous month s forecast. The panel expects inflation to average.1% in 16. MONETARY SECTOR Bank of Canada keeps overnight rate unchanged At its March monetary policy meeting, the Bank of Canada (BoC) kept the overnight target rate at.75%. The decision was expected by the markets. The Bank had reduced its overnight target rate by 5 basis points in a surprise move at its 1 January meeting thus bringing the rate at its lowest level since September 1. The BoC commented that economic performance in the last quarter of 1 was broadly in line with the Bank s expectations. Lower oil prices had a modest impact on aggregate demand. However, a more pronounced negative effect is expected to be manifested in the first quarter of 15. The Bank added that, data for 1 as a whole suggest the anticipated rotation into stronger growth in non-energy exports and investment is well underway. Regarding price developments, the BoC said that inflation has fallen as expected, largely reflecting the dramatic drop in oil prices. However, core inflation remains broadly stable around.% as it continues to be boosted by the pass-through effects of the weaker currency. FocusEconomics Consensus Forecast panelists see the policy rate at.75% at the end of 15. For 16, panelists expect the policy rate to rise to 1.5%. FocusEconomics Consensus Forecast

34 Canada Economic Indicators 1-19 Annual Data Real Sector Population (million) GDP per capita (USD) 7,5 5,168 5,79 5,7 5, 5,88 7,1 5,81 5,88 56,85 GDP (USD bn) 1,61 1,79 1,8 1,89 1,789 1,6 1,71 1,8 1,987,115 GDP (CAD bn) 1,66 1,77 1,81 1,89 1,976,7,16,18,1,1 Economic Growth (Nominal GDP, ann. var. in %) Economic Growth (GDP, annual var. in %) Domestic Demand (annual variation in %) Private Consumption (annual var. in %) Government Consumption (ann. var. in %) Gross Fixed Invest. (ann. var. in %) Non-Residential Fixed Invest. (ann. var. in %) Exports (G&S, annual variation in %) Imports (G&S, annual variation in %) Industrial Production (annual variation in %) Retail Sales (annual variation in %) Housing Starts (thousands) Teranet House Prices (annual variation in %) Unemployment (% of active population, aop) Fiscal Balance (% of GDP) Public Debt (% of GDP) Monetary and Financial Sector Money (annual variation of M++ in %) Inflation (CPI, annual variation in %, eop) Inflation (CPI, annual Sample variation in %, aop) Report Inflation (Core, annual variation in %, aop) Inflation (PPI, annual variation in %, aop) Target for the Overnight Rate (%, eop) Month T-Bill (%, eop) Year Bond Yield (%, eop) Stock Market (TSX variation in %, eop) Exchange Rate Contact (CAD per USD, eop) us for 1. the 1. latest version: Exchange Rate (CAD per USD, aop) External Sector Current Account Balance (% of GDP) Current Account Balance (CAD bn) Trade Balance (CAD bn) Quarterly Data Q 1 Q 1 Q1 15 Q 15 Q 15 Q 15 Q1 16 Q 16 Q 16 Q 16 Economic Growth (GDP, annual var. in %) Economic Growth (GDP, saar in %) Private Consumption (saar in %) Gross Fixed Invest. (saar in %) Non-Residential Fixed Invest. (saar in %) Exports (G&S, saar in %) Imports (G&S, saar in %) Unemployment (% of active population, aop) Inflation (CPI, annual variation in %, aop) Target for the Overnight Rate (%, eop) Month T-Bill (%, eop) Year Bond Yield (%, eop) Exchange Rate (CAD per USD, eop) Monthly Data May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-15 Feb-15 Economic Growth (GDP, s.a. mom var. in %) Housing Starts (thousands of units, saar) Teranet House Prices (mom var. in %) Unemployment (% of active population) Ivey PMI s.a. (5-point threshold) Inflation (CPI, s.a. mom variation in %) Inflation (CPI, annual variation in %) Exchange Rate (CAD per USD, eop) FocusEconomics Consensus Forecast

35 Real Sector Gross Domestic Product Canada 1 Real GDP -19 var. in % 6 - World GDP 15 evolution of forecasts 6% Canada Real GDP Q1 1-Q 16 var. in % Canada - Q1 1 Q1 1 Q1 1 Q1 15 Q1 16 GDP 16 evolution of forecasts Real GDP growth in % Sample Report 1 Maximum 1 Maximum Consensus Consensus Minimum Minimum Nov Feb May Contact Aug Nov Feb us Novfor Feb Maythe Aug Nov latest Feb version: 5 GDP 15 Panelist Distribution Individual Forecasts BMO Capital Markets 1.9. CIBC World Markets Citigroup Global Mkts Commerzbank..5 Credit Agricole.5. Credit Suisse 1.. DekaBank..9 Desjardins Group.. Deutsche Bank.5.7 DZ Bank.6 - EIU.. ING.. JPMorgan 1.8. Julius Baer.5. KBC.. Nomura.1. Oxford Economics.. RBC Capital Markets.. Scotiabank 1.9. Standard Chartered.8.8 Toronto-Dominion Bank 1.9. UBS.9.8 Minimum.8.8 Maximum.9.9 Median.1. Consensus.1. History days ago.. 6 days ago.. 9 days ago.5. Additional Forecasts Central Bank (Jan. 15).1. IMF (Jan. 15)..1 OECD (Nov. 1).6. % % % < >. Long-term chart period from to 19 unless otherwise stated. All real sector data are from Statistics Canada (SC). Forecasts are based on FocusEconomics Consensus Forecast. 1 GDP, annual variation in %. Quarterly GDP (seasonally adjusted), q-o-q annualized variation in %. GDP, evolution of 15 forecasts during the last 18 months. GDP, evolution of 16 forecasts during the last 18 months. 5 GDP, panelist distribution of 15 forecasts. Concentration of panelists in forecast interval in %. Higher columns with darker colors represent a larger number of panelists. FocusEconomics Consensus Forecast 5

36 Real Sector Additional forecasts Canada 6 Consumption variation in % Consumption and Investment 6 Consumption Gross Fixed Inv. Private Non-res. Inv. Canada variation in % variation in % variation in % Individual Forecasts BMO Capital Markets CIBC World Markets Citigroup Global Mkts Commerzbank Credit Agricole Credit Suisse DekaBank Desjardins Group Deutsche Bank DZ Bank EIU ING JPMorgan Consumption evolution of fcst Julius Baer KBC Nomura Oxford Economics RBC Capital Markets Scotiabank Standard Chartered Sample Toronto-Dominion Report Bank UBS Minimum Maximum Median Consensus History days ago days ago Investment variation in % 9 days ago Canada Investment evol. of forecasts 6 - Long-term chart period from to 19 unless otherwise stated. All real sector data are from Statistics Canada (SC). Forecasts are based on FocusEconomics Consensus Forecast. 6 Private consumption, annual variation in %. 7 Private consumption, evolution of 15 and 16 forecasts during the last 18 months. 8 Gross fixed investment, annual variation in %. 9 Gross fixed investment, evolution of 15 and 16 forecasts during the last 18 months. FocusEconomics Consensus Forecast 6

37 Real Sector Additional forecasts Canada Exports and Imports Exports Imports variation in % variation in % Individual Forecasts BMO Capital Markets CIBC World Markets Citigroup Global Mkts...5. Commerzbank Credit Agricole Credit Suisse DekaBank Desjardins Group...5. Deutsche Bank DZ Bank EIU ING JPMorgan Julius Baer KBC Nomura Oxford Economics RBC Capital Markets Scotiabank..8.. Standard Chartered Toronto-Dominion Sample Bank Report UBS Minimum Maximum Median Consensus History days ago days ago days ago Exports variation in % Imports variation in % Canada Canada 11 Exports evolution of fcst Imports evol. of forecasts 5 Long-term chart period from to 19 unless otherwise stated. All real sector data are from Statistics Canada (SC). Forecasts are based on FocusEconomics Consensus Forecast. 1 Real exports of goods and services, annual variation in %. 11 Exports, evolution of 15 and 16 forecasts during the last 18 months. 1 Real imports of goods and services, annual variation in %. 1 Imports, evolution of 15 and 16 forecasts during the last 18 months. FocusEconomics Consensus Forecast 7

38 Real Sector Additional forecasts Canada 1 Unemployment % of active pop Canada Industry variation in % 16 Industry evolution of fcst Canada Industry, Unemployment and Fiscal Balance Industry Unemployment Fiscal Balance variation in % % of active pop. % of GDP Individual Forecasts BMO Capital Markets CIBC World Markets Citigroup Global Mkts Commerzbank Credit Agricole Credit Suisse DekaBank Desjardins Group Deutsche Bank DZ Bank EIU ING JPMorgan Julius Baer KBC Nomura Oxford Economics RBC Capital Markets Scotiabank Standard Chartered Toronto-Dominion Bank UBS Minimum Maximum Median Consensus History days ago days ago days ago Fiscal Balance % of GDP 5 Canada Long-term chart period from to 19 unless otherwise stated. All real and monetary sector data are from Statistics Canada (SC) and the Department of Finance (DF). See below for details. Forecasts are based on FocusEconomics Consensus Forecast. 1 Unemployment, % of active population. Source: SC. 15 Industrial production, annual variation in %. Source: SC. 16 Industrial production, evolution of 15 and 16 forecasts during the last 18 months. 17 Balance of non-financial public sector as % of GDP. Source: DF. FocusEconomics Consensus Forecast 8

39 Monetary Sector Inflation Canada 18 Inflation - 19 in % Inflation 15 evol. of forecasts 1 Canada Inflation 15 Panelist Distribution 6% 19 Inflation Q1 1-Q 16 in % 1 Inflation 16 evol. of forecasts 1 Canada Q1 1 Q1 1 Q1 1 Q1 15 Q1 16 Maximum Consensus Minimum Maximum Consensus Minimum 1 Nov Feb May Contact Aug Nov Feb us Novfor Feb Maythe Aug Nov latest Feb version: Inflation annual variation of consumer price index in % Individual Forecasts BMO Capital Markets 1.. CIBC World Markets.8. Citigroup Global Mkts Commerzbank 1.. Credit Agricole 1.7. Credit Suisse.8.6 DekaBank 1.. Desjardins Group.8.6 Deutsche Bank 1.. DZ Bank - - EIU.7. ING.7. JPMorgan - - Julius Baer 1.5. KBC Nomura.5. Oxford Economics.8. RBC Capital Markets.9.8 Scotiabank 1..1 Standard Chartered. 1. Toronto-Dominion Bank..1 UBS - - Minimum. 1. Maximum Median.9. Consensus 1..1 History days ago days ago days ago 1.8. Additional Forecasts Central Bank (Jan. 15) 1.. IMF (Oct. 1) 1.9. OECD (Nov. 1) % % % < >. Long-term chart period from to 19 unless otherwise stated. All monetary sector data are from the Bank of Canada (BoC). Forecasts are based on FocusEconomics Consensus Forecast. 18 Inflation, annual average variation of consumer price index (CPI) in %. 19 Inflation, annual variation of quarterly average consumer price index (CPI) in %. Inflation, evolution of 15 forecasts during the last 18 months. 1 Inflation, evolution of 16 forecasts during the last 18 months. Inflation, panelist distribution of 15 forecasts. Concentration of panelists in forecast interval in %. Higher columns with darker colors represent a larger number of panelists. FocusEconomics Consensus Forecast 9