Euro zone

Eurozone gaining ground: ECB crowding-out effects dwindling

Having only recently focussed on the latest portfolio flow data from the USA, we are now casting a glance at the Eurozone. As is the case in the USA, thus far “only” data up to and including November 2018 have been released, but the trends for the year are nevertheless clearly discernible. While the USA has in recent years benefited from massive repatriation of capital, in the Eurozone capital outflows outweighed, on the part of both foreign investors and above all their local counterparts. In the years 2015 to 2017 this led to capital totalling EUR 940 billion being withdrawn from Euroland, whereby capital exports by local investors came to no less than EUR 1.4 trillion. In 2018 a recovery set in at long last. Domestic investors continued to send capital abroad, but the volume amounted to EUR 155 billion and was thus well down on the figures seen the…

Eurozone: Small glimmer of hope for the economy

From February 2018 onwards the Euro-Indikator fell without interruption for 11 consecutive months. In January 2019 it rose again for the first time – albeit only marginally. Compared with the figure for December, the DZ BANK Euro-Indikator edged up 0.1 percent and it now rests at 99.1 points as compared to 99.0 in December. Its rate on the prior year remained unchanged at -2.4 percent. It bears considering here that in January there was a slight revision in the entire time series for the Euro-Indikator attributable to the European Commission having altered the way it calculates consumer confidence. With the new calculation method for the indicator for consumer confidence, the European Commission has for the first time since 2001 revised its survey-based time series with a view to improving its predictive qualities as regards private consumer spending. The estimates for private households as regards the development of their personal financial…

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…

Returning to monetary policy normality is a challenge

he European monetary authorities have used conventional as well as unconventional monetary policy measures to counter the knock-on effects of the financial and debt crisis in recent years. However, it is now becoming increasingly clear that the monetary policy toolbox is virtually empty – as evidenced by the fact that the European monetary authorities are being increasingly forceful in urging various Eurozone countries to implement reforms. Should the clouds on the economic horizon darken further over coming weeks and months, the monetary authorities are at first likely to adjust their current forward guidance for key interest rates. If inflation remains at a low level, the monetary authorities are likely to abandon the idea of a hike in key interest rates. To clarify this position, the ECB could once again highlight in its monetary policy statement that key rates will probably remain at their present levels for an extended period of…

Europe in a dilemma: national interest outweighs community spirit

The Eurozone has failed to solve its structural problems since the sovereign debt crisis; nor does the Union seem prepared for any economic downturn. It would make total economic and political sense for core as well as periphery countries to put their own short-term interests to one side a little, in order to improve the economic performance of the Eurozone as a whole. Solutions could include a European monetary fund, provided it was able to provide financial assistance and was also given the power to actively influence the fiscal policy of a member state and impose sanctions if necessary. A functioning Union also requires the loss of a bit of freedom. A more expansionary fiscal stance would be very sensible in the event of deteriorating economic conditions. This might include investment incentives for companies, bringing forward public spending, and tax breaks for private households. However, this would need to be…

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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