Europe Advancing as Weather Chills U.S. Growth: Global Economy

Steadily improving economies in Germany and the U.K. stand in contrast to a slowdown in China, while Mother Nature thwarts further progress in the U.S., data this week are projected to show.

German business confidence is forecast to hold in February close to the highest level since mid-2011, while growth in the U.K. last year was probably the strongest since 2007. Manufacturing in China stalled this month, according to a Bloomberg survey.

In the U.S., new-home sales and factory orders for durable goods probably cooled last month, adding to evidence of the toll on the economy from winter storms east of the Mississippi River.

The data will provide the latest read on the world’s largest economy as Federal Reserve Chair Janet Yellen prepares to deliver a second round of testimony on monetary policy to lawmakers Feb. 27 on Capitol Hill. The hearing before the Senate Banking Committee, originally slated for Feb. 13, was postponed by a snowstorm that closed government offices in Washington.

Elsewhere, a slower pace of inflation in Brazil may persuade central bankers, who meet on Feb. 26, to become less aggressive in tightening monetary policy.

GERMAN CONFIDENCE

-- German business confidence is projected to hold near the highest level since July 2011 as Europe’s largest economy benefits from record-low unemployment and improving demand for its exports. The Ifo institute’s gauge, scheduled for release on Feb. 24, is forecast to slip to 110.5 this month from 110.6 in January, according to the median estimate in a Bloomberg survey of economists.

-- Christian Schulz, a senior economist at Berenberg Bank in London, said euro-area purchasing managers’ surveys published Feb. 20 are “raising hopes that German demand will continue to lift the euro zone out of trouble.” The indexes showed German manufacturing expanded for an eighth month, albeit at a slower pace, and services activity accelerated.

U.K. ECONOMY

-- U.K. gross domestic product rose 0.7 percent in the fourth quarter, capping the economy’s best year since 2007 amid growth in every industry except construction, according to the Bloomberg median forecast. The Feb. 26 figures, with data on exports and spending by consumers and government, are the Office for National Statistics’ second estimate for the quarter.

-- “The expenditure breakdown is likely to show some rebalancing, with positive contributions from investment and net trade alongside the more familiar consumption drivers,” said Ross Walker, senior U.K. economist at Royal Bank of Scotland Group Plc. “Overall, the fourth-quarter GDP data are likely to be viewed positively by the markets: a moderately above-trend pace of growth with broad-based expansion.”

CHINA MANUFACTURING

-- China’s Purchasing Managers’ Index, a gauge of manufacturing released by the National Bureau of Statistics and China Federation of Logistics and Purchasing, probably fell to 50.1 in February, the weakest reading since June, from 50.5 a month earlier, a Bloomberg survey showed ahead of data on March 1. Numbers greater than 50 signal expansion.

-- “Conditions in the manufacturing sector continue to deteriorate,” Julian Evans-Pritchard, China economist at Capital Economics Ltd., wrote in a Feb. 20 note. “With no loosening of monetary policy on the horizon, we expect that slowing credit growth will continue to weigh on the sector in the coming months.”

U.S. HOUSING

-- Sales of new U.S. homes declined for a third straight month in January as snowfall blanketed half the U.S. and kept prospective buyer traffic at a minimum, a Feb. 26 report from the Commerce Department is projected to show.

-- “While higher mortgage rates have clearly taken some steam out of the housing recovery, they won’t extinguish it altogether,” Paul Ashworth and Paul Dales, economists at Capital Economics Ltd., wrote in a research note. Once the weather returns to seasonal norms, residential investment will resume adding to overall GDP growth.”

DURABLE GOODS

-- Orders placed with factories for big-ticket goods declined in January for a second month, the first back-to-back decrease since 2011, a report on Feb. 27 is forecast to show. Bookings excluding aircraft and military hardware, a proxy for spending on capital equipment, may have also decreased for a second straight month.

-- “Core orders were likely weak for a second consecutive month in January, down 1.5 percent,” Bank of America Corp. economists led by Ethan Harris wrote in a research note. Shipments of such equipment also declined “as freezing weather slowed down business activity over the month.”

BRAZIL RATES

-- Brazil’s central bank on Feb. 26 may reduce the pace of monetary tightening as inflation eases and the government pledges to cut spending from its budget, raising its benchmark Selic rate by 0.25 percentage point following six half-point increases.

-- “There are more signs of weakness in economic activity, and inflation was lower than expected in January,” Flavio Serrano, senior economist at Banco Espirito Santo de Investimento, said by phone. “The central bank expects that annual inflation will continue to fall in upcoming months. That leaves the bank in a more comfortable position.”

-- “The budget announcement may have kept them from tightening another 50 basis points,” John Welch, a macro strategist at Canadian Imperial Bank of Commerce, said. “They have a lot of monetary tightening packed in there. It’s time to sit back and see it work.”

INDIA GDP

-- India’s gross domestic product probably expanded 4.8 percent in the fourth quarter from the same three months a year earlier, economists said in a Bloomberg survey before a report due Feb. 28. The government forecasts growth of 4.9 percent in the fiscal year through March, faster than the decade-low expansion of 4.5 percent in the previous period.

-- “While inflation is easing along expected lines, growth momentum continues to be weak,” Deutsche Bank AG economists Taimur Baig and Kaushik Das wrote in a Feb. 13 report. “Subdued growth may also nudge the central bank into an easing bias, although with the weight of inflation targeting on its shoulder, the Reserve Bank of India will tend to err on the side of policy tightening in the years ahead.”

To contact the reporter on this story: Vince Golle in Washington at vgolle@bloomberg.net

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net

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