The data broadly tally with survey evidence from Purchasing Managers. Of note this morning was the IMF's assessment of the UK economy as documented in its latest World Economic Outlook, where it highlights the strength of sterling's real exchange rate and the associated risks to net exports and hence GDP growth going forward. The trade pattern continues to show weakening domestic demand with the trade surplus rising even as exports slow. The deflationary trend remains strong. As long as the fixed exchange rate policy continues, we expect deflation to continue for at least four to six more months.
All indicators are that China's cyclical downturn is continuing.
This was to be expected since export orders from these markets were strong in the fourth quarter of 1997. However, orders now appear to be falling. Buyers from the US and Europe are also demanding price discounts and getting them. The exports to these two markets are likely to moderate in the second quarter. In fact, we will probably see a single-digit export growth rate for March 1998.