USA

US economic growth slows in Q4, but still robust

Figures published recently after a delay of about four weeks show annualised growth of 2.6 per cent in the US economy in the fourth quarter. The consequences of the shutdown at the turn of the year are still clear, and most statistical agencies were also affected. The resulting negative impact on macroeconomic production is barely noticeable in the figures for the final quarter, although federal institutions did not shut down until 22 December. Generally speaking, the slacker growth after two previously strong quarters is as expected. One positive factor is the continuing acceleration of investment in equipment and machinery. The further contraction in housebuilding is disappointing, but not surprising. We still expect US economic growth to reach around two per cent this year. Solid growth, but a clear decline compared to 2018, when a figure of 2.9 per cent was reported. Continuing positive sentiment at companies and among consumers signals…

Trump’s involuntary policy of the strong Dollar

While the trade talks with China evidently went sufficiently constructively and US President Trump has also found (albeit highly dubious) financing for his prestige project, the wall along the Mexican border, the risk is growing that he will now turn his attention to his next arch-enemy. It has long since ceased to be a secret that he is annoyed by the successful German (car) exports to the USA. Possibly with the report from his Trade Department he now has the formal basis for imposing tariffs of up to 25% on automobile imports “for reasons of national security”. For the Euro-US Dollar exchange rate the corresponding discussions pose double-trouble: Firstly, the US Dollar is currently the ultimate safe haven – irrespective of the nature of the uncertainties. Secondly, the Eurozone, which is economically fragile anyway, and with it the Euro, would suffer at the hands of both a collapse in exporting…

FOMC minutes: The Fed’s balance-sheet rundown looks like ending soon

The minutes of the FOMC meeting held on 29th /30th January which were published yesterday reveal that committee members are not yet prepared to proclaim that the Fed’s rate-hike cycle is at an end. For example, a number of members of the Fed’s policymaking body have gone on record as saying that further tightening may perhaps be necessary over the course of the year, making this contingent on how the economic situation develops. The transcript shows, however, that almost all FOMC members are in agreement, in view of the growing risks, that a temporary pause in the rate-hiking cycle would be appropriate. They argue that there is currently a whole cluster of risks which, in their view, indubitably justify an interruption in the tightening cycle. Factors imposing a particular burden are the difficult Brexit negotiations, the trade dispute between the United States and China, the volatile equity-market trend and the…

US: escalation on the domestic political front but foreign trade deals might be possible?

Only the courts can stop Trump now and prevent the misappropriation of budgetary resources. With the first primaries of the presidential election starting already in one year, the polarisation and division in domestic politics will increase. The latest escalation level does not bode well either for the next deadline for raising the debt ceiling, which is on the agenda shortly. The negotiations for budget year 2019/2020 that starts on 1 October are unlikely to go any better than this time round. As far as foreign policy is concerned, Trump will on the other hand probably retain his dealmaker status. He is clearly very keen to be re-elected next autumn. Talks on the trade disputes with China are currently in full swing and it is quite possible that further punitive tariffs will not be imposed. The cooling-off period agreed on by the heads of both countries ends already at the end…

US: agreement reached on the federal budget but Trump’s political escalation shows no signs of abating

The two parties and the US president reached an agreement on the budget dispute a few days ago, just before the deadline was set to expire. Another shutdown of numerous federal authorities was thus avoided – good news from the US political front. However, just after the compromise was reached, President Trump declared a national emergency in order to access the full amount he had demanded to build a wall at the border to Mexico. Rather than leading to the anticipated easing of internal political affairs, it escalated the confrontation instead. The Democrats and a few individual federal states have already announced their intention to take political and legal action against this. Trump only declared the national emergency to bypass Congress’ budgetary authority, thus creating a precedence in US history. Although the US president holds considerable sway over foreign policy, domestic policy generally requires the approval of the Senate and…

US threats of customs tariffs hang like the sword of Damocles over German carmakers’ necks

On 25 July last year, European Commission President Juncker persuaded US President Trump not to impose punitive tariffs on automobiles. Of late, there has been growing concern about US tariffs on European cars. The US Department of Trade could classify the import of cars and automotive parts as constituting a threat to America’s national security and therefore, from the US point of view, lay the foundations for introducing customs tariffs. The German car industry has in recent years definitely performed gratifyingly. And that despite the diesel scandal and the threat of a few major German cities imposing bans on certain vehicles. However, the car industry’s fortunes have recently shown signs of braking. In 2018, orders from elsewhere in Europe sagged by over seven percent. Within Germany, things were not much better, with a decline of over four percent. Only order receipts for German cars from outside Europe continued to rise…

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