Federal Reserve members expected US economic growth to strengthen significantly this year, driving inflation higher. Nevertheless, future interest rate expectations remained put at 0.25 per cent through 2023. The Fed also reiterated its intention to keep its bond purchasing programme alive, purchasing $120 billion worth of debt per month until it policy targets were met. GDP growth was expected to accelerate in 2021 from a previous forecast of 4.2 per cent to a sharp 6.5 per cent, with expected inflation rising to 2.2 per cent from 1.8 per cent previously over 2021.

In Germany meanwhile, the ZEW Economic Confidence index rose to 76.6 in March from its February value of 71.2. Expectations were for an increase to 74.0. ZEW president Achim Wambach cited this greater-than- expected rise was in line with experts’ expectations of a broad-based recovery of the German economy.

Economic confidence surrounding the eurozone also rose, with the index rising to 74.0, an increase of 4.4 points from February. Inflation expectations within the monetary union meanwhile also rose significantly, up 8.8 points to 80.6, with ZEW adding that most experts expected inflation rates across the bloc to rise.

Hourly labour costs in the eurozone increased by three per cent year on year in the final quarter of 2020, compared to a 1.6 per cent rise in the third quarter of the same year. Wages and salaries were seen to have risen by 3.5 per cent compared to the rise in non-wage costs of 1.5 per cent. The increase in labour costs was nevertheless not uniform across member states, with some countries experiencing sharper rises (for example Luxembourg, Cyprus and Austria) and others experiencing contracting labour costs (Netherlands, Lithuania and Estonia).

Norway’s Central Bank signalled that an interest rate hike might be necessary in the latter half of 2021 as economic activity picked up at a faster-than-expected rate in the Scandinavian economy. This improvement was also linked to projections of an improving global economic outlook. Norges Bank Governor Oystein Olsen stated that as economic conditions normalised, interest rate increases from the current zero-rate would “again be appropriate”. In contrast to most other central banks, Norges Bank expected a gradual rise in the interest rate as 2021 entered its second half.

The Australian jobless rates fell to just 5.8 per cent in February from 6.4 per cent the previous month, well below a forecast marginal decrease to 6.3 per cent. Economists argued this was evidence that the labour market was improving at a faster rate than most expected it with Commonwealth Bank economist Kristina Clifton adding that the jobs lost during the early months of the pandemic were fully replaced by the increase registered. Job growth strength was also cited as a reason in favour of  removing broad-based Australian government support programmes such as the JobKeeper programme, which had been designed to support businesses and help keep people employed through subsidies.

This article has been prepared by Bank of Valletta plc your general information purposes only.