Economy

Foretaste of the Brexit economic brake

At first glance, the UK economy did not fare all that badly in 2018: the 1.3% year-on-year increase in fourth quarter economic output in the UK was much more substantial than in the EMU and its big member states. Against the background of the ongoing Brexit uncertainty, economic growth of 1.4% for the full-year 2018 is also quite respectable. However, British companies seem to have finally applied the emergency brakes in response to the increasingly confusing political developments in the British House of Commons. This is evident by the gross domestic product (GDP) data in December –now published on a monthly basis too – which recorded a sharp month-on-month decline of 0.4%. The weak growth in the final month of 2018 prevailed across all sectors of the economy – for the first time since 2012. The UK industry declined for the fourth consecutive month. Manufacturing industry output has been contracting…

Spain: Strong growth despite political logjam

Little seems capable of shaking the Spanish economy at the moment. With a quarter-on-quarter growth rate of 0.7% in the fourth quarter of 2018 the Spanish economy even managed to accelerate compared to the summer months (third quarter 2018: plus 0.6%). This is a respectable result bearing in mind the fact that Spain’s major trading partners such as Germany, France and Italy delivered a rather weak performance in the second half of 2018. Conspicuous here is how little the country’s ongoing political weakness has impacted its good economic performance. The incumbent social democratic government under prime minister Pedro Sánchez may be described as anything but effective. With just 84 out of 350 seats it is the smallest minority government in the whole of Europe. This makes it almost impossible for it to carve out its own independent economic and welfare policy profile. The Sánchez government is reliant on the toleration…

US politics curb economic growth significantly

uncertain economic policy environment. Even if a federal budget compromise that President Trump is also able to sign can be hammered out in the next three weeks, we still expect dampening effects on the US economy. Day-to-day politics will no doubt be dominated by staggering from one deadline to the next until November 2020. Consumers and businesses alike will be somewhat more cautious in the future. We have, therefore, lowered our growth forecast and now expect economic growth of 2.1% in 2919 and of 1.6% in 2020. Overall, the growth dynamic will be somewhat reduced, but still solid. Given the somewhat weaker outlook for the US economy, we have also lowered our inflation forecast. Ultimately, wage growth will probably accelerate less than initially assumed despite the good employment situation. After an average inflation rate of just 2% this year we expect 2.3% next year. In his first two years in…

Sobering quarterly results for economic growth in the eurozone

The dip in economic growth in the eurozone carried over to the fourth quarter of 2018. Economic growth compared to the previous quarter remained at a feeble 0.2%. Concerns about a possible hard Brexit, new EU exhaust emission standards and smouldering international trade disputes held back most of the national economies in the currency area. In particular the three largest eurozone countries – Germany, France and Italy – slowed down in terms of economic growth. The cyclically weaker second half of 2018 in the eurozone also dragged down the annual average noticeably: following macroeconomic growth of 2.4% for 2017, growth last year was only 1.8%. The outlook for the current year is similarly cautious. The climate in the private sector just recently has only been “slightly optimistic”, stating it cautiously. Based on this assumption we are likely to see a cooling of economic growth to about 1% for the 2019…

EU budget 2021-2027: More burdens instead of innovations

The EU Commission wants the new EU budget to be passed rapidly after the European elections in May. It is seeking to have the budget for the years 2021 to 2027 approved by the European Parliament and the Council before the end of 2019. But we fear that little use is being made of the opportunity to modernize the budget and that approval will take longer than hoped – not least because of the many bones of contention and the increasing euro-scepticism in some countries. EU citizens will suffer as a result: the budget holds scant prospects of innovations in store for them, but it will bring heavier burdens. The budget is supposed to become more modern and meet the major political challenges of the next few years. In addition, larger investments are planned in sectors that are important for the future. However, the EU is looking very lethargic in…

Euroland: Slightly weaker growth in corporate loans in final-quarter 2018

According to figures from the European Central Bank, in 2018 corporate loans in Euroland grew just short of 4 percent. In other words, the rise in loans portfolios, after adjusting for sales, securitisation and fictitious cash pooling activities, slowed slightly in the fourth quarter of last year. However, the trend differed greatly from one country to the next. While corporate loans in Germany surged 6.4 percent, the highest rate in almost ten years, they actually fell in Spain. In France, growth in Q4 2018 slowed mildly, while it dipped appreciably in Italy. Loans to private households also developed unevenly, with the overall pace for Euroland picking up slightly to reach 3.3 percent. All in all, the trend last year was gratifying: The European loans markets, which suffered from 2012 to 2015 from a decline and/or weak growth, benefited from high demand for credit among corporations and private households alike. In…

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