USA

US economy benefits from rising debt, an example for other countries?

A heated debate has flared up in Germany about the usefulness of the debt brake. The current regulation actually offers the government enough flexibility, but they don’t want to take advantage of it. In the USA, on the other hand, the path is completely different, which has led to a significant increase in the deficit in the state budget. In particular, tax cuts and rising social costs have significantly widened the gap in the US federal budget. Above all, the financial relief for companies and private households has provided positive economic impulses. According to estimates, the tax cuts by the Trump government have relieved companies by around USD 80 billion and private households by around USD 120 billion. This alone should have contributed to growth of around 0.7 percentage points. With expected GDP growth of 2.3% yoy in 2019, this is a not inconsiderable contribution. Whether planned or not, with…

US Federal Reserve pauses… until the next crisis

The minutes of the US Federal Reserve’s 29th and 30th October meeting, released yesterday evening, show that the currency guardians continue to view the risks to the economic outlook as high. Against this backdrop, a rate cut would have been appropriate, even though the decision to do so was a close one. However, most FOMC members were of the opinion that the monetary policy orientation was now appropriate following the recent interest rate move. This makes further rate cuts unlikely for the time being. For the interest rate cuts to continue, the economic outlook would have to deteriorate noticeably again. The risks associated with the still smouldering trade conflict with China are high and can quickly become a significant economic risk. There are different interpretations of the state of negotiations between the USA and China. It should be noted, however, that both sides should welcome a positive development. On the…

FOMC: Pause after three interest rate steps

As expected, the US Federal Reserve again lowered its key interest rate corridor by 25 basis points yesterday evening. This was the Fed’s third interest rate move this year. FOMC members Rosengren of the Boston Regional Fed and George of the Kansas City Regional Fed did not support the interest rate decision. The central bank again justified the monetary policy measure with global developments and subdued inflation. Overall, the introductory section of the Fed’s press release was hardly changed. It merely pointed out that export activity was weak. However, the situation on the labour market remained robust and the economy developed moderately. The explicit announcement that the Fed would act to maintain economic expansion with a strong labour market has been dropped. The press conference was quite unspectacular. After a brief assessment of the economic situation, which was quite optimistic, the Fed Chairman gave a brief explanation of the liquidity…

No end to uncertainty yet

Uncertainty remains the determining factor for the economy and financial markets. The Brexit and the US-Chinese trade dispute, two of the most important political issues, may have come closer to a solution in the last few days. However, it is not yet clear where the journey is heading. As for the week ahead, important economic data is expected from both sides of the Atlantic. Economic growth in both the euro zone and the United States is likely to have slowed again in the third quarter. Investment in particular is suffering from continued uncertainty, while companies remain cautious in the face of a lack of clarity regarding future prospects. Growth in the euro zone is likely to have been considerably weaker than in the USA, and between July and September it was only just above zero. Industry in particular is suffering as a result of the international pressures. This is particularly…

Trade dispute slows China’s economic growth

The Chinese economy lost further momentum over the summer months. Economic growth in the third quarter was again lower than in the previous quarter, falling to a new 27-year low of 6.0 percent (y/y). Market estimates were thus slightly missed, but our own somewhat more sceptical expectations came true. The downward trend that began at the beginning of last year with the outbreak of US-Chinese trade disputes has continued. The largest growth losses occurred in industry, which recorded its lowest increase since 1990 in the past quarter at 5.0 percent. This figure would have been even weaker if industrial production had not picked up visibly in September, the month that ended the quarter. We remain cautious, however, as to whether this will signal a reversal of the industrial downturn. On the contrary, as in the course of the year to date, this could conceal government measures that have been brought…

Rare earths: Beijing’s pledge of fist

  China exported so few rare earths in September as it has not done for more than two years. Australia, on the other hand, intends to significantly expand its exports of rare earths in the near future, with sales in the United States in particular set to increase. The USA is currently working on a cooperation agreement with Australia to promote the production of rare earths. This is intended to make the worldwide, but above all the US demand for the important metals more independent of the Chinese supply supremacy. For there is great concern that Beijing could impose an embargo on the export of raw materials against the USA, thus using its dominant position as a „weapon“ in the trade dispute – even if the two sides have recently come a little closer to settling the conflict. Rare earths are indispensable for today’s technologies, although metals are only needed…

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