Macro Weekly – The US fiscal mess – Q&A

by: Nick Kounis , Aline Schuiling , Peter de Bruin , Maritza Cabezas , Georgette Boele

W131007-The-US-fiscal-mess-QA.pdf ()

Big Picture: The current stalemate surrounding the US budget and the looming debt ceiling will probably end with a deal at the eleventh hour. Although the chances have increased that the shutdown lasts weeks rather than days, the economic effects will be relatively short-lived. There will be some dent to Q4 economic growth, which could prompt the Fed to delay tapering to next year. However, we see no reason to alter our positive view of the economic outlook for 2014. Of course, if the debt ceiling is not raised, leading to a technical default , that would have major economic and financial consequences, but that still looks like a tail risk event.

Eurozone: ECB President Mario Draghi continued to signal that the ECB’s monetary policy would remain accommodative for an ‘extended period’. The central bank is willing to ‘consider all available instruments’ to ensure that money market conditions remain consistent with an easy monetary policy stance, and hinted that another LTRO was a possibility in the coming months.

US: Business surveys were mixed in September. The ISM manufacturing index rose, which was impressive given the gains in previous months. However, the ISM nonmanufacturing index declined, which could potentially be related to the fiscal mess. Economic growth looks set to come in at around 2% in Q3.

Asia: Asia’s manufacturing PMI surveys picked up in September. In India, Indonesia, Taiwan, South Korea and Vietnam the PMIs were more positive, while in China the PMIs rose only marginally, but that followed gains previously.