Germany

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…

Germany – a risk for the euro zone

German industry is visibly suffering, although exports to China continue to develop very robustly. The PMI for German industry fell to 41.4 points in September, its lowest level for more than 10 years. In the services sector, there are also initial signs that the economic slowdown will have a stronger impact here as well. So far, we expect GDP growth in Germany of 0.6 percent in 2019 compared with the previous year. However, the downside risks for the German economy are increasing and a mild recession can no longer be ruled out. Accordingly, calls for fiscal stimulus are growing louder and louder. If these are limited to incentives for public investment, however, such measures will hardly have any effect. This is because there is a lack of capacity for possible implementation. Even now, not all possibilities can be exhausted. Rapid and efficient support for the economy would be possible if…

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…

Rising Oil Price – Is Inflationary Pressure Coming Now?

After the attacks on oil production facilities in Saudi Arabia, the price of oil has risen significantly. The price quotation for the North Sea variety Brent rose very abruptly from just under 60 US dollars to just over 65 US dollars. This corresponds to a historically strong increase of more than eight percent within one day. In the longer term, however, the rise and the current level of the oil price are less worrying. There have been much stronger oil price movements in recent years. Between summer 2017 and autumn 2018, the oil price rose by more than 70 percent to over 80 US dollars. Although this caused the German inflation rate to rise above the 2 percent mark for a short time, the rate of inflation returned to normal quite quickly thereafter. Can inflation in the euro zone and Germany be expected to rise noticeably as a result of…

Acting at the frontier

The reactivation of the bond purchase program in combination with rising government debt can quickly lead to rising yields. The ECB will reactivate the bond purchase programme, which can now be regarded as an instrument of monetary policy equivalent to interest rate policy. This time, however, the purchase program was not given an end date, which can quickly lead to problems. Government bonds claim the largest part of the planned purchase volume of 20 billion euros per month for themselves, which, according to estimates, gives the ECB the opportunity to buy government bonds until the end of 2020. At the same time, an end to ECB purchases is associated with inflation close to the target of almost two percent, which even ECB forecasters do not foresee up to and including 2021. Changes to the issuer limit or the capital key could prolong government bond purchases, but are associated with legal…

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