Economy

Poland and Hungary: soon no longer a low-wage country?

The Eastern European states have so far relied on low wages as a locational advantage. For some time now, however, Poland and Hungary have been recording perceptible wage increases that call this concept into question. Due to the shortage of skilled workers and announced minimum wage increases, wage dynamics are likely to remain high in the coming years. This applies in particular to Poland, where the current ruling party, shortly before the parliamentary elections in mid-October, has announced that the current minimum wage will almost double by 2023 to 4,000 zloty (about 912 euros) per month. The image of a „low-wage country“ is obviously being deliberately abandoned. Labour costs are therefore likely to be under pressure. However, labour productivity should keep pace with wage growth so that Eastern European countries do not fall behind in international competition and jobs and important investments in production locations are not endangered. A look…

Italy remains faithful and follows the Governing Council of the ECB

The new Italian government is planning a budget deficit of 2.2% for 2020. This is more than the targeted 2.04% this year. The expansionary budget is expected to bring the growth rate of economic output to 0.6% in the coming year, after a planned 0.1% this year. The 2020 draft budget contains a number of expansionary measures. The government is planning relief for the lower income brackets and an investment programme for environmental protection. Moreover, the VAT increase originally planned and agreed for the beginning of 2020 will not be implemented. To cover the additional expenditure, savings are to be made in various areas, proceeds from privatisation and proceeds from the fight against tax evasion. Ultimately, however, this is not enough to reduce the deficit. Another problem remains, as the debt ratio is expected to rise to over 135% of GDP this year and to decline slowly in the coming…

Japanese Industry Sentiment Index Falls to Six-Year Low

According to the Bank of Japan’s latest Tankan report, the mood among Japan’s large industrial companies has fallen to a six-year low. The corresponding sentiment index only reached a value of 5 points on the scale of +100 to -100 in the third quarter. There are two main reasons for the decline in sentiment. On the one hand, the export-oriented Japanese industry continues to have sales problems, which have to do with the US-Chinese trade conflict or reduced demand from China. On the other hand, much uncertainty has arisen about the actual purchasing intentions of domestic consumers in the run-up to the VAT increase (from October 1). The index of the propensity of private households to buy has been plummeting for some time now. At the same time, however, there were good retail sales, which apparently had to do with pull-forward effects. Now, however, demand for consumer goods is likely…

Inflation rate in the euro zone falls below the 1.0 percent mark

Consumer price inflation in the euro area weakened in September. According to the flash estimate, the annual rate of inflation in the currency area was 0.9 percent. In the previous month it was still at 1.0 percent. At the country level, there was a uniform downward trend in prices. In Germany, the Harmonized Index of Consumer Prices (HICP) fell from 1.0 to 0.9 percent, in France it fell from 1.3 to 1.1 percent. The inflation rate is significantly lower in Italy and Spain. Spanish consumer prices rose by only 0.2 percent year-on-year compared with 0.4 percent in the previous month. In Italy, the annual rate fell from 0.5 to 0.3 per cent. The rise in the price of unprocessed food fell sharply and European consumers again had to pay less for energy goods than in the previous year. The fact that unprocessed food was comparatively cheap in September may be…

Purchasing managers‘ indices in the euro zone: Bad mood in September

According to the September survey, the comprehensive composite purchasing managers‘ index for the euro zone lost 1.5 points and at 50.4 points (75-month low) is only slightly above the growth threshold of 50 index points. The decisive factor was a significant decline in demand from service providers and industry. In particular, the downturn in industry has accelerated again, and it seems to be increasingly the case that the previously robust services sector is being pulled down as well. According to IHS Markit, sentiment barometers in the entire currency area have been lower than they have been since 2013. The German economy, and German industry in particular, appears to be increasingly at the centre of economic weakness. And according to business expectations, there is no turn for the better in sight. At the end of the third quarter, the growth prospects for the euro zone are clouding over on the basis…

Corporate earnings follow economic momentum

The economy in the euro zone has cooled noticeably in recent months. The slowdown in growth momentum has not been uniform in the individual countries. Rather, the different growth models of the countries are clearly visible here. The weaker economic momentum is mainly driven by lower growth in world trade, which is mainly reflected in declining foreign trade surpluses, with weaker demand for capital goods being particularly visible. Domestic economic development, on the other hand, is still relatively stable. This is certainly also due to continued high employment and stable disposable incomes. The result of this development is falling capacity utilization and productivity. The latter should weaken international competitiveness in the medium term. Inflation rates will remain relatively low. This limits the scope for companies to pass on prices. Cost increases are therefore very difficult to pass on. This development, which is unfavorable for companies, is now slowly making itself…

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