Economy

China: Economic stimulus measures showing first effects

China’s economy seems to have fallen back into step. Economic growth stabilized at 6.4% at the beginning of the year. This comes as a positive surprise. Above all, the very dynamic acceleration of industrial production in March by three percentage points to 8.5% signals that the economic stimulus measures initiated by the Chinese government in recent weeks are having an effect. State investment activity and investment in infrastructure have also picked up. Clearly problematic is that we are once again seeing the „old“ stimulus packages with the typical longer-term risks to financial stability and potential growth. The OECD has only recently warned Beijing of this. On the other hand, the boost to private consumption thanks to the VAT reduction from 16% to 13% is to be welcomed. It should also prove conducive to spurring demand for automobiles which has fallen sharply. However, there are still no visible signs of this…

Service sector defies the global economic slowdown – National Industrial Strategy misses the mark

The current slump in order intake, above all from abroad, is not due to the lack of competitivity of German industrial companies. Rather, it is the consequence of German industry being strongly reliant on exports – at a time when the international economic cycle is slowing. In this context, the debate about a “National Industrial Strategy 2030” launched by the German Federal Ministry for Economic Affairs and Energy is all the more important. The “National Industrial Strategy 2030” contains strategic guidelines for overall industrial policy. However, the long-term trend shows that industrial companies in Germany have hitherto succeeded very well in maintaining their international competitive edge without the active influence of government. And they have a comparatively major importance for the German economy as a whole. Sales patterns over the past 15 years also show, however, that some service-sector companies have posted more dynamic growth than manufacturing and that they…

Fear of the slowdown

Brexit has been kicked down the road again, this time until Halloween. The conditions of the extension are not very attractive for Great Britain and one may continue to hope that the present withdrawal treaty will be accepted after all. Nor should one now any longer rule out political consequences for Theresa May. A disorderly Brexit has thus been circumnavigated once again. From the central banks’ point of view this is undoubtedly a very welcome development: if one of the current pollical risks were to materialize, it could significantly disrupt the fragile growth environment. An appreciable deterioration of the economic situation would in turn pose an almost unsolvable problem for most central banks. If they act proactively, they will soon come up against their limits and could be obliged to take ever more unorthodox measures. This could unleash a crisis of confidence. But if the central banks were to remain…

Loan markets adjust for weakening growth – anticyclical capital buffer counterproductive

As the ECB’s current survey of Euroland banks shows, corporate demand for loans held steady in Q1 2019 and the banks also hardly changed their loan approval standards, if at all. By contrast, demand for private housing construction loans continued to grow thanks to the low interest rates and banks tightened their approval guidelines for property financing. The majority of banks also expect to see rising demand in both categories in the coming months. Although the proportion of optimists has edged up marginally since the January survey, compared to 2018 there has been a massive decrease in the size of the majority of credit institutes who believe in growing demand for loans. This is consistent with the growth trend in European loan markets, which has apparently reached its zenith. For corporate loans, this was the case as long ago as the end of September last year, when growth rose to…

Overstated fears of recession

Global economic momentum is slowing down. The pace differs, but the direction is the same in all countries. This also naturally gives immediate rise to fears of a global recession. But there is no need to get things out of proportion. In my opinion the situation is not that bad. Fears of a recession are currently being underscored by US yield structures. The US treasury bond curve between three months and ten years has recently inverted. In the past, this had often served as a precise indicator of an impending recession in the USA. Financial markets should be wary of coining the phrase „This time everything will be different“. However, there is much to suggest that the yield structure has indeed lost some of its significance. The reason for this is that the US Federal Reserve has noticeably modified its reaction capacity in recent months and is now paying more…

Euroland industry stuck in reverse gear

The stabilisation in the Euroland economic outlook that had seemed nascent since the beginning of 2019 is at risk from the ongoing difficulties in the industrial sector. This is shown by the current development of DZ BANK’s Euro-Indicator. Our economic leading indicator dipped again in March, by 0.2 percent, having recovered slightly in January and February 2019. While almost half of the individual indicators that feed into the computation of the Euro-Indicator tended at least slightly positively in the past month, the industrial sector made a clearly negative contribution. The deterioration in manufacturing purchasing manager sentiment had a particularly unfavourable effect. According to the Markit survey, in March the EMU industrial sector saw the largest business losses in almost six years. Moreover, production expectations in manufacturing have fallen for the fourth consecutive time. Amongst private households, by contrast, an essentially upbeat sentiment prevails. While they likewise do not rate the…

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