Euro zone

Spain: Will the strong economic growth last

A good year ago, on 22nd January 2016, the first attempt to form a coalition failed in Spain. This was followed by a prolonged period of political gridlock. Many economic policy measures were shelved for the time being. Until today, even the budget for the current year 2017 has not yet been adopted. It took until October 2016 for the major parties to agree to tolerate a minority government led by former Prime Minister Mariano Rajoy. Since then, the political wheels have been turning at full speed. So far, though, the political deadlock does not appear to have visibly damaged the Spanish economy. Indifferent to all this, economic growth remains at a high level. Since the second half of 2014, strong quarter-on-quarter growth rates have been recorded in each quarter of between 0.6 and 1.0 percent. And for the final quarter of 2016, the indicators available until now signal renewed strong…

Euro area purchasing managers remain in good spirits

The preliminary publication of the results of the survey of purchasing managers in the EMU paints an optimistic overall picture of sentiment. Although the aggregated Composite Index was down slightly from 54.4 to 54.3 index points, this still leaves it significantly above the full-year average of 53.3 points. The index for the service sector shed 0.1 points and is now at 53.6 points. The sentiment barometer for manufacturing industry rose, by contrast, from 54.9 to 55.1 ticks. According to the survey institute IHS Markit, the better performance in industry is due to a significant increase in incoming orders from abroad. Overall, the hiring intentions in both sectors were higher than at any time since February 2008. Ultimately, this reflects the exceptionally optimistic assessment of the business outlook among the polled purchasing managers. But the increasing price pressure caused by higher commodity prices and the weaker euro exchange rate against the…

Lending approvals: Banks more cautious on corporate lending

According to the January ECB Bank Lending Survey (BLS), the banks surveyed tightened their lending standards for loans to corporates in the fourth quarter of 2016. This marks the first net tightening of lending standards since the same quarter in 2013. The net balance of the banks surveyed came to 3% (prior quarter: 0%), whereby the figure describes the difference between the percentage of banks reporting they had tightened lending standards and the percentage of banks reporting they had eased lending standards. In this context, a positive figure indicates that a higher proportion of banks tightened their standards during the period in question. According to the BLS, the main reason for the tightening of credit standards on loans to the corporate sector was banks’ increasing risk aversion. Lending standards for loans to private households for house purchases remained largely unchanged. The net balance of the banks surveyed stood at 1%…

Italy: relegation from Series A

The Canadian rating agency DBRS announced on Friday that it has downgraded Italy’s rating from A (low) to BBB (high), outlook stable. The initial market response this morning saw a slight softening of Italian bonds, but also of other peripheral securities, since the rating change by DBRS had not been expected by all market participants. DBRS justifies the move on the one hand by growing doubts about Italy’s ability to continue implementing structural reforms following the failure to reform the senate. Although the new transitional government enjoys a certain degree of support from the coalition parties, the likelihood of a new election is nonetheless high. Following the constitutional court’s ruling on the electoral law expected for late January, the parties‘ primary focus could be on an election campaign. According to DBRS, the actual date of new elections may not be set until autumn this year. On the other hand, DBRS…

Brisk consumer spending drives robust growth in Germany in 2016

In 2016, the German economy continued on its robust growth track. With a real increase of 1.9 percent, the economic output actually scored the strongest growth since 2011. Private consumer spending and public consumption expenditure rose appreciably, as they had in 2015, laying the basis for macroeconomic growth. Private households’ zest for consumer spending was supported again in 2016 first and foremost by favourable labour market trends. Gainful employment climbed sharply, and is now at a new record, while at the same time the unemployment rate in 2016 fell to a new low. As a result, as in recent years employees’ income surged. In real terms, private consumer spending in 2016 rose +2.0 percent and thus as strongly as in 2015. In this context, in the past year two “one-time effects” helped boost private consumer spending and public consumption expenditure. The low price of oil braked energy prices and the…

Global economic growth in 2017: recovery with risks

In its latest outlook for global economic growth the World Bank is very optimistic for the coming year. After a weak 2016 it expects growth to recover in the industrialised countries, but above all it forecasts an improvement in the emerging markets, which last year were marred in some cases by ongoing crises, for example in Brazil, Argentina and Russia. In 2017 these countries are expected to stage a recovery, albeit a rather faltering one. And while in China growth will probably also continue to decline slowly in 2017, in India it is likely to accelerate again in the course of the year after the problems caused by economic policy. However, the World Bank’s economists also emphasize the risks that hang over the outlook. These lie mostly in the realm of economic policy. Admittedly, the Brexit vote and the outcome of the US presidential elections have not yet had any…

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