Economy

Strong reliance on exports also becoming a problem for Japan

Sentiment in corporate Japan suffered heavily in the first three months of this year. The quarterly survey index compiled by the Bank of Japan (the Tankan Index) most recently sagged across the board. Among the major industrial companies that rely on exporting, the assessment of the current situation fell from 19 to a mere 12 points. This was weaker than generally expected and the lowest level in two years. Where the major service providers are concerned, the index dropped from 24 to 21 points. In terms of all companies (all sectors and size categories) the Tankan slid from 16 to 12 points. Several factors probably triggered the slump in sentiment: Firstly, the trade dispute between the USA and China has also clearly marred conditions for Japanese exports. Japan supplies many semi-finished products to China’s export industry and is thus exposed to the latter’s losses in business with the US. Secondly,…

Easter effect squeezes Euroland inflation rate slightly to 1.4 percent

The Euroland inflation rate hardly moved in March. According to Eurostat’s preliminary calculations, consumer prices were 1.4 percent up on the prior-year month. In the previous month, the annual rate had been slightly higher at 1.5 percent, whereby the eased upward pressure is attributable to service sector prices. This is possibly caused by the comparatively late date for Easter this year, namely 21 April. This is also discernible in the core rate, which excludes the more volatile elements of food and energy prices and fell 0.2 percentage points to 1.0 percent. Last year, Easter was on 1 April and the Easter holidays therefore largely began as early as March. Prices in the hotel and accommodation segment as well as for transport services were thus accordingly higher in March 2018. This then brakes the climb in service prices in March 2019. And it also means, of course, that we can expect…

The economy and stock markets appear to be decoupled

The German economy is highly dependent on exports and very successful abroad. This is clearly evident from the country’s current account surplus of 7.4 percent of GDP, with which it by far leads the way globally. The German economy’s vulnerability in the event of external interferences is the other side of the coin. Great Britain is the fourth-largest export market for German companies. As such, it is hardly surprising that the never-ending Brexit debacle is impacting negatively on the mood among German companies. China is the most important trading partner outside Europe. The slowdown in growth there that has been looming for months is now becoming clearly tangible with regard to German companies’ export prospects. ifo export expectations have accordingly plummeted. The German economy could well already be in a mini-recession. The economy as a whole, however, is not. For that the labour market, service sector, and building industry are…

ifo survey: German companies are regaining confidence

Companies’ business expectations for the coming months have improved again somewhat for the first time since August 2018. Estimates about the current situation also picked up after the weaker preceding months. That is a good sign that the domestic economy has bounced back again after the weak second half of 2018. Robust domestic demand in particular is responsible for the shift in sentiment. Business continues to do well in the services sector, supported by a very favourable labour market trend, and the construction sector is still booming. Headwind from the weaker global economy and international risks is currently impacting the manufacturing industry. The Brexit drama is weighing on sentiment, particularly in Europe. Nonetheless, there are also rays of hope: an easing of the tension in the trade talks between the US and China is likely to have had a positive effect. Unlike the PMI index, which fell last week, the…

Downturn in Euroland industry intensifies – purchasing managers remain sceptical

The Euroland economy looks to have only expanded modestly in the first quarter, or so the renewed dampened sentiment among European purchasing managers would suggest. According to IHS Markit’s survey of European purchasing managers, the index for industry saw the strongest decrease in six years. The service sector proved more resilient thanks to robust domestic demand, but here, too, the figure fell. On balance the composite PMI dipped 0.6 points to 51.3 points in March. Industry in Germany and France were in decidedly poor spirits. In France, sentiment among service providers has also deteriorated. In the remainder of the Eurozone, according to IHS Markit, sentiment by contrast brightened slightly. Nevertheless, the survey results are a disappointment. They certainly do not speak in favour of Euroland economic growth picking up clearly in first-quarter 2019. This is in line with our forecast. According to the survey among purchasing managers, German industry is…

Italy in recession – budget plans vanish into thin air

In the second half of 2018 the Italian economy slid into recession owing to the economic downturn in Euroland and the generally slower global economy. After negative growth of 0.1% in Q3 (on the prior quarter), between October and December the Italian economy shed a further 0.1%. For 2018 as a whole, economic growth on the prior year ran at 0.8%. Compared to the other Eurozone member states, Italy’s economic performance remains below average. In the previous upturn phase, growth in Italy lagged behind the EMU average, and it is, moreover, the only country in the EMU to be in recession. A glance at the economic indicators that have been published suggests that the phase of acute weakness is likely to persist for a while. In the current first quarter we do not expect the country to return to growth. On balance, annual growth for 2019 looks set to be…

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