Economy

The fat years are over

  Since 2014, the German finance ministers have always been able to report budget surpluses. Over the past six years, the total federal budget has accumulated more than 200 billion euros, which could be used to pay off debts or flowed into the reserves for overcoming the refugee crisis. But this is now over, as the current tax estimate makes clear at the latest. This year alone, the national budget will be short of around 100 billion euros in tax revenues compared with the forecasts from the pre-Corona period. At the same time, there will be high additional expenditures for crisis management. So in 2020 Germany will have high deficits at all levels of government and will probably have to incur significantly more new debt in just one year than it was able to save up in the six years before. The new debts are unavoidable and no attempt should…

Back to normality

In the industrialized countries, the corona pandemic is gradually stabilizing and developing in a relatively orderly fashion. In Germany, this easing of the infection figures has led to a real boost in easing measures. However, this discussion is not only taking place in Germany; in all countries there is increasing pressure to relax the rigid lock-down measures and to give people more freedom again. In the end, these new freedoms are not reflected in the financial markets. Here, the planned easing and the restarting of the economies have already been priced in over the past few weeks. However, the easing of the monetary policy also raises concerns about a second wave of contagion. If this were to be too strong, it could also lead to renewed – hopefully targeted – restrictions in economic and private life. Accordingly, the price fireworks have come to an end for the time being. In…

British economy shrank in Q1 – but the worst is yet to come

  British economic output in the first quarter was down by two percent on the previous quarter – slightly less than expected, and also in view of its European neighbours, above all France, Italy and Spain, the UK economy has come through the first weeks of the Corona crisis relatively unscathed. However, this is by no means a reason to sound the all-clear. After all, the British government did not completely „shut down“ the economy until relatively late, on 24 March. In view of the fact that shops and restaurants were only closed for eight days in March, and industry and the construction sector were hampered by the strict exit restrictions for six working days, the losses in March were considerable, at around six percent each in the service sector, construction and the economy as a whole. Services exports alone fell by 20 percent in March, while exports of goods…

Europe and ECB at the limit

The economy in the euro zone is plunging into by far the deepest crisis since the introduction of the common currency. In its current spring forecast, the EU Commission even speaks of Europe 2020 experiencing an economic shock the likes of which have not been seen since the Great Depression. Economic output in the euro zone is therefore likely to shrink by 7.7 percent this year. Although a significant recovery is predicted for 2021, it will not be able to make up for the major slump. According to our updated forecasts, the downturn is likely to be even more severe this year. We expect the euro zone to shrink by a good nine percent. Whether this will be followed by a rapid recovery is anything but certain. Even if the EU Commission, national governments and the European Central Bank do everything in their power to achieve this. The ECB has…

BVerfG sets ECB deadline

The Federal Constitutional Court (BVerfG) today handed down a landmark ruling for European monetary policy and the financial markets. It has partially upheld the complainants‘ appeal against the PSPP. The court primarily admonishes the lack of a review of the proportionality of the chosen means and thus also challenges the decision of the European Court of Justice, which had declared the PSPP admissible. In its reasoning, the BVerfG specifically states that the PSPP decisions of the ECB are to be qualified as „ultra vires measures“ despite the ECJ decision. This means that the ECB, as it proceeded, acted outside its competences. However, the Court of First Instance only partially agrees with the complainants, because it in turn denies the allegation of monetary public financing. What exactly follows from the judgment? „The Federal Constitutional Court gives the ECB three months to justify the proportionality of the chosen means to the public…

Sweden’s „special path“ offers no protection against a recession

The corona virus has also spread rapidly in Sweden. In combating the virus, however, the government of the Scandinavian country relies primarily on recommendations and the common sense of the citizens. Unlike in many other countries, strict initial restrictions were not imposed here. Sweden is taking a special path. With this special path, the Swedish government cannot avoid a recession, but the economic downturn is unlikely to be as severe as in other countries. According to the Swedish Statistical Office’s flash estimate, Sweden’s economic output in Q1 shrank by „only“ 0.3 per cent compared with the previous quarter. Compared with the southern European countries, where economic activity came to a virtual standstill at times, this is a very good result. Nevertheless, the downturn in the Swedish economy is likely to gain momentum significantly in the second quarter. Even without an order to close stores, the retail trade in Sweden will…

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