Stock markets

The ECB’s monetary policy undermines reform incentives in the periphery

Euro area governments and the ECB are not pulling together. On the basis of its mandate and according to its own official statements the European Central Bank’s policy is aimed at guaranteeing monetary stability. In order to ward off the danger of deflation in the Euro area, the ECB is pursuing a highly accommodative policy, but this is enjoying ever less support from the national governments in the form of the implementation of structural reforms. Especially the periphery states are facing growing internal political resistance, which is clearly eroding their readiness to implement reforms and impose austerity measures. At the same time, the former crisis states are benefiting from the fact that the risk premiums on EMU government bonds are distorted to the downside because of the ECB’s policy and the incentive for commercial banks to hold government bonds. Given their high levels of debt these countries have an interest…

Italy: Assessing the effects of the labour market reform „Jobs Act“ – what has been achieved so far

Italy’s lengthy economic crisis has caused unemployment to rise noticeably in past years. Rigid labour market regulation has additionally decelerated the development of employment. Both factors prompted the Italian government to act and overhaul the labour market. Due to the rigid regulation of the Italian labour market, employees had become divided into two groups – those with permanent jobs that were virtually impossible to terminate and those with limited working contracts. The reform was adopted at the end of 2014 and implemented in stages in the first half of 2015. Essentially the labour market reform, dubbed the „Jobs Act“, focused on loosening up the previously very strong protection against dismissal rules. A new working contract model was created that was intended to act as a bridge between temporary and permanent employment. In addition to creating more flexibility, the workforce was also to be offered greater social security. The reform has…

The end of globalisation

Global economic growth has been disappointing for some years now – and it is still flagging. This year the global growth rate will probably be no more than 2.7 per cent. This is the lowest rate since crisis year 2009. One of the most important reasons for the sluggish pace of growth is to be found in the companies’ reluctance to invest, especially in the industrialised countries. In the United States companies have already been investing less in new plant and equipment for as long as three quarters. In other important national economies companies have also been conspicuously reluctant to invest for some time now. Often cited as possible reasons for this slack investment activity are pessimistic turnover forecasts, restrictive lending by banks or the heightened global uncertainty. In our view, there is yet one more reason for the disappointing investment activity: the trend towards globalisation in the world economy,…

Japan: Sluggish economy in the second quarter

The Japanese economy did little more than stagnate in the second quarter, growing only 0.2 per cent (q-o-q, annualized). This setback does not come as a complete surprise given the surprisingly strong figure in the first quarter, when GDP grew 2.0 per cent (also q-o-q, annualized). Nevertheless, the latest figure fell short of the market’s expectations. All the same, compared to the year-earlier period Japan’s economy climbed back into the black again, with a growth rate of +0.4 per cent (y-o-y) after two quarters in the red. Major reasons contributing to the weak performance in the spring quarter include external influences such as production shutdowns in April in the wake of the earthquake on south island Kyushu, where many companies have automobile and IT production plants, which are export-intensive industries. Exports then also fell steeply in the second quarter (-1.5% q-o-q, simple rate). But inventory depletion (-0.2 % q-o-q) also…

British economy heading straight for a recession

In the final analysis, this was to be expected: but the impression gained from the latest survey indicators on sentiment in the British economy directly after the Brexit vote is overwhelming. The industrial climate, measured in terms of the Purchasing Managers‘ Index for the manufacturing sector, plummeted in July to the lowest level in three years, with the almost four index-point drop the strongest even in five years. At just around 48 points, the indicator now lies way below the 50 point threshold considered to be the starting point for growth. The purchasing managers‘ assessment even deteriorated noticeably during the survey period. Compared with a preliminary estimate, which was only based on 85 percent of the survey results, this final indicator reading has been revised downwards again by nearly a full percentage point. The surveyed companies unanimously cite the now widespread uncertainty over the economic consequences of the referendum as…

US labor market: Good June figures but overall deceleration in the employment trend

The official Employment Situation Summary, published last Friday by the US Bureau of Labor Statistics (BLS), confirmed the picture of a still robust employment trend. The fact that the unemployment rate is likely to decline at a far slower pace this year than in the previous year is essentially commensurate with our expectations and has therefore not come as a surprise. However, the June report also confirms that the employment trend in the USA appears to have passed its peak. This year so far, the monthly average increase in persons employed has amounted to around 170,000 compared with the same period a year earlier when the number of persons employed grew by around 220,000 persons. In 2014 the monthly increase even came close to a quarter million in the first half-year. Against this backdrop, the increase in the unemployment rate from 4.7 to 4.9 percent should not give cause for…

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