USA

US politics curb economic growth significantly

uncertain economic policy environment. Even if a federal budget compromise that President Trump is also able to sign can be hammered out in the next three weeks, we still expect dampening effects on the US economy. Day-to-day politics will no doubt be dominated by staggering from one deadline to the next until November 2020. Consumers and businesses alike will be somewhat more cautious in the future. We have, therefore, lowered our growth forecast and now expect economic growth of 2.1% in 2919 and of 1.6% in 2020. Overall, the growth dynamic will be somewhat reduced, but still solid. Given the somewhat weaker outlook for the US economy, we have also lowered our inflation forecast. Ultimately, wage growth will probably accelerate less than initially assumed despite the good employment situation. After an average inflation rate of just 2% this year we expect 2.3% next year. In his first two years in…

FOMC: First pausing then ending the rate-hike cycle

As generally expected, the Fed left its key rates on hold at yesterday’s meeting. The press statement published in the wake of the interest-rate decision points to a considerably more cautious monetary-policy stance than in earlier months. For example, the Fed’s policymaking committee went on record as saying that they intend to be “patient” with regard to further key rate hikes. Furthermore, the passage in the FOMC Statement providing guidance on the direction of the next monetary-policy step was formulated in a very open way: depending on the future path of inflation, the economic trend and geopolitical circumstances, FOMC members will either raise or lower its key rates. They have signalled at the same time that more flexibility will be allowed in future in terms of normalising the Fed’s balance sheet, arguing that they could stop shrinking the balance sheet if that were warranted by economic developments. This is a…

US: no end to the political nail-biter

After the Republicans lost their majority in the House of Representatives in November, we believed a period of consensus-seeking between the two party alliances to be the most likely scenario. This had been the most common political route out of the impasse in the case of split majorities in the past few decades. In this case, this was not what happened. Instead Trump maintained an icy resistance. Some federal authorities were forced to shut down for 34 days, as the US President insisted on being given USD 5.7bn to build a wall along the border to Mexico. Not only does the House of Representatives, which is meanwhile dominated by the Democrats, refuses to fund the wall. Numerous Republicans reject it too. It took until the end of last week for the President to capitulate and approve the stop-gap spending bill presented by Congress. Key reasons for this no doubt include…

China: Trade dispute starts to squeeze the economy

For a long time it looked as though the trans-Pacific trade dispute would not really affect the Chinese economy. We now know that economic growth in the final quarter of last year amounted to 6.4%, the lowest level since the low point reached in the financial crisis ten years ago, falling short of the growth target that the Chinese government had set itself. This at least is what the official data from the country’s statistics bureau say. Doubts remain as to whether the decline may of late actually have been greater, but Beijing would probably not have permitted publication of an even weaker growth rate. Precisely in economically weaker phases such as the current one, missing targets and sharper volatility in economic growth in China are delicate issues, as the government likes to use the growth figures to demonstrate stability. For 2018 as a whole, economic growth came to 6.6%…

Trump and his wall: is a state of emergency possible?

A state of emergency is usually justified by a political leader or a government if existing powers are not enough to combat a crisis. In the US, Congress also passed numerous laws in previous centuries, giving the President additional emergency powers in the event of a military, economic or labour market crisis. Some of these have not only been archived, but are also currently in force. After the adoption of the National Emergencies Act in 1976, the President is still free to decide when to declare a state of emergency. During an emergency, both houses of Congress must meet every six months and discuss whether a vote on terminating the emergency should be conducted. The emergency decree expires automatically after one year, unless it is renewed by the President. Overall, very little is mentioned in the constitution about the powers held by the President or Congress within the framework of…

Is the US housing market in danger of crashing?

In 2018, house prices in the United States rose for the seventh consecutive year. However, the upswing recently lost momentum amid stagnating sales figures. The debt ratio of private households has meanwhile fallen noticeably, but still stands at around 100% of income. Moderate loan granting as well as construction activity argue against an imminent fall in prices. Nevertheless, the risk of a sudden slump in demand and renewed rise in debt remains. But let’s take a closer look at the situation on this important real estate market. After all, the volume of mortgages in the USA exceeded the 9 trillion dollar mark again last year, with this last happening in 2008. On a steady upward trajectory, US house prices returned to pre-crisis levels already two years ago and have even exceeded them. Over the course of last year, demand went into decline again for the first time since 2014. This…

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