Belgian GDP growth is expected to drop to 0.8% in 2020, down from 1.3% in 2019. Domestic demand remains the key engine of growth, partially offset by a negative contribution from net trade. Private consumption growth is reduced as employment increases now at a slower pace, after 4 strong years. Investment growth is up, spurred on by public expenditures. The lack of a majority-backed government contributed to renewed fiscal slippage, which remains a key risk for the Belgian economy.
Supported by catching-up effects, the Greek economy managed to accelerate slightly despite a slowing European environment. Confidence indices have improved strongly and the Greek state has successfully returned to the capital markets. The new centre-right government is seeking to cut taxes on labour and capital without sacrificing fiscal discipline. The recovery will be a long process, but it is on track.
On 31 January 2020, the United Kingdom will officially leave the European Union and all of its constituent institutions. Brexit will therefore happen in law if not in fact, as, during a so-called ‘transition’ period set to end on 31 December 2020, the British economy will remain a full part of the single market and the European customs union. Goods, services and capital will continue to move freely into and out of the EU, which will continue to have legal and regulatory authority. True separation will only come at the end of this period, once the framework of the future relationship has been settled. As has been the case for some time now, this final step does not look easy to achieve.
GDP growth slowed sharply in 2019, and this trend is expected to be confirmed in 2020. Uncertainty surrounding the business climate and international trade are straining exports and investment. Consumption is barely rising and is unlikely to revitalize growth. Despite this environment, and with inflation near the central bank’s 2% target rate, the Riksbank opted to raise its key policy rate from -0.25% to 0%. Even so, monetary policy is still accommodating.
In a less buoyant international environment, Denmark’s small open economy managed to maintain a rather dynamic pace. Thanks to its sector specialisation (pharmaceuticals, digital, etc.), the economy has been fairly resilient despite the downturn in the global manufacturing cycle. A labour market verging on full employment and accelerating wage growth have bolstered consumption, which is still one of the main growth engines. With the Danish krone (DKK) pegged to the euro, the central bank’s monetary policy will follow in line with ECB trends, and is bound to remain very accommodating. Fiscal policy will be geared towards the ecological targets of reducing greenhouse gas emissions.
The most recent economic data in the Eurozone send an encouraging signal. The economic situation remains subdued, and particularly in the manufacturing and export sector, but a start of stabilisation can be expected...
The economic climate in Q4 has hardly changed compared to three months earlier. The weakness is concentrated in the manufacturing sector, where production and orders are well below their long-term average. The growth impetus is coming from the more domestic-oriented sectors such as construction and services. Consumer confidence and retail sales remain well oriented thanks to low unemployment, low interest rapidly increasing wages...
Mozambique urgently needs to resume a medium-term agreement with the IMF, the latter having suspended its cooperation in 2016, after discovering a hidden debt of around 1.2 billion dollars. Already, a first default of a Eurobond issued on 2013 for an amount of 850 billion dollars, in order to finance patrol vessels, had led to a first restructuring. Following a second default in January 2017, a new restructuring agreement for about 900 billion dollars has been reached last September. Nonetheless, the Mozambican state creditworthiness remains very fragile. A part of the hidden debt (around 8% of GDP) remains in default and a judicial battle is underway against Mozambican’s state. The latter is asking for the deletion of one of the two state guarantees issued
For the first time since 2010, the five major Portuguese banks returned to profitability in 2018. The main factors behind this swing into profits were a faster decline in interest expense than in interest income, and tight control over operating expenses and the cost of risk. The widening of the net interest margin offset the decline in the outstanding amount of bank loans, increasing net interest income. Other things being equal, the decrease of the interest rates also contributed to the reduction in the cost of risk and the clean-up of bank balance sheets. Although the non-performing loan ratio and outstanding amount were halved, they remain at high levels
2019 has been dominated by uncertainty, in particular about trade tensions and hard Brexit risk, as well as mounting concern about the slowdown of the global economy. his has led to additional policy easing by the ECB whereas the Federal Reserve has reversed course by cutting the federal funds rate on several occasions. This has further reduced the remaining policy leeway of central banks, a subject that will be analysed in the context of the strategic reviews by the Fed and the ECB. It has also led to increased calls for fiscal stimulus. Equity markets have delivered surprisingly strong returns with investors preferring to look at the role of lower interest rates, rather than at the weakening of the profits outlook
We monitor uncertainty by means of different metrics and several have eased as of late. Starting top left and moving clockwise, the economic policy uncertainty index, which is based on media coverage, has declined although it remains at a high level...
When looking at Colombia’s creditors by residence and type of institution over the past 10 years, we observe three main dynamics at play: first, non-residents have increased their exposure to the sovereign in both relative terms but also in absolute terms as the general government’s debt burden has increased by 20 percentage points of GDP in the intervening time. Second, most of that increase has been driven by larger holdings from foreign non-banks (i.e. investment management industry) which in fact have captured the shortfall in sovereign financing left behind by domestic banks. Finally, non-residents have altered the currency composition of their holdings as evidenced by their comparatively much larger exposure to local currency public debt instruments over the period.
The slowdown in economic activity in the Eurozone and inflation structurally below the target rate have raised the spectre of “Japanification”. This would mean effective growth running below potential, very low interest rates and negative inflation. In Japan, this combination of factors resulted from the bursting of the financial and real estate bubbles of the early 1990s. There is a range of factors that could cause “Japanification”. Faced with the challenges of an ageing population and slowing productivity gains, the Eurozone will need to focus its efforts on boosting its potential growth and its resilience to shocks. Short- and medium-term economic policy choices will therefore be crucial in limiting, as far as possible, the risk of “Japanification”.
Based on business surveys, the cyclical environment, globally, seems to have stabilised. A similar picture emerges for the eurozone and China, whereas in the US it is mixed. Stability’ characterises the monetary policy outlook. After the announcements in September, the ECB can afford to wait before making a judgment of the effectiveness of its policy stance. For the Federal Reserve, it seems that the bar for envisaging a change in the federal funds rate is high, even more so when it’s about considering a rate hike. Stabilisation of economic data and a stable, very accommodative monetary stance provide reasons for being hopeful, but this supposes that uncertainty doesn’t increase again. In this respect, unfortunately, the situation remains very opaque
Most indicators for November surprised on the upside. Despite a string of disappointing data, in particular from the manufacturing sector, GDP actually increased in Q3 by a meagre 0.1%, whereas the consensus had expected a further shrinkage (-0.1%). The main reason was robust growth of private consumption, underpinned strong household confidence levels. GfK indicate that household confidence has remained also very strong in Q4. Also net exports contributed positively to growth, as world trade bounced back. Nevertheless, industrial production remained very weak and the strong rebound in orders in September was the only positive surprise for manufacturers.
While many observers have been worried since several months about the health of the manufacturing sector, the activity in services still shows resilience and keeps growing at a pretty decent pace. Nevertheless, the latest economic indicators send a less favourable signal. The Purchasing Managers Index (PMI) for the services sector indeed decreased in November to 51.5 (against 52.2 in October). This level is quite low regarding the historical average. The outlook for economic growth in the coming months, by and large, depends on the resilience of the labour market and the ability to create new jobs.
Our Pulse indicators leave a misleading negative impression. Indeed, with a 0.3% q/q print in Q3 2019 (first estimate), French growth continues to prove remarkably resilient and stable. And Q4 prospects look similarly positive judging by the October and November results of INSEE business confidence surveys and Markit PMIs. Admittedly, the composite indices were almost unchanged in November but they stand at a relatively high level (105 and 53, respectively). Besides, the headline figures mask more positive details, like, for instance, the improvement in the industry sector (whose confidence index, it is worth emphasizing, stands in the expansion zone contrary to Germany where it is in recession) and the rise in the employment and new export orders components.
The financial crisis of 2008 left its mark on the macroeconomic, regulatory and legal environments in the United Kingdom. It was followed by a long period of consolidation in the banking sector. Although the major British banks have managed to improve their performances recently, they are now faced with fresh challenges, starting with the uncertainty surrounding Brexit. For the banks, this uncertainty will not be resolved immediately by the conclusion of the Brexit as they will still need to adjust to the loss of their European passporting rights and potentially to address a contraction in demand in their domestic market.
Economic growth slowed to 6.0% y/y in Q3 2019 from 6.4% in Q4 2018. This is well under the annual average of 8% recorded over the past decade: the structural slowdown continues, aggravated since last year by the consequences of US protectionist measures on exports. Growth in private consumption has also decelerated, delaying the process of rebalancing of Chinese growth sources. Fiscal and monetary policy easing measures have been multiplied, and their impact on domestic demand should be visible in the last quarter of 2019.
Do fluctuations in uncertainty have a symmetric or asymmetric effect on the economy? The question is important considering that since last year, uncertainty has been acting as a headwind to global growth. Moreover, recent news about the US-China trade negotiations and Brexit have raised hope that uncertainty may have peaked and that growth in activity could accelerate. Empirical research shows that an increase in uncertainty has a bigger effect on the economy than a decline, in particular in a subdued growth environment. This would suggest that, should the decline in uncertainty be confirmed, the pick-up in growth would be very gradual.
In 2018, France remained an attractive place to invest, despite a tense social climate and an economic environment marked by the slowdown in European economy, Brexit and trade tensions between the United States and China. According to the EY barometer, France outperformed Germany and ranked right behind the UK in terms of the number of foreign investment projects. The industry, digital and services to corporate clients sectors attracted the greatest number of projects. France’s attractiveness highlights the resistance of its industrial network, the strength of its entrepreneurial ecosystem and the dynamism of its research. Recent reforms are also having a favourable impact. However, there is still room for progress in terms of taxation and labour costs.
GDP growth in Q3 2019 has beaten expectations. The growth rate stabilised at +0.2% (q/q) compared to the previous quarter. Economic growth is stable in Spain (+0.4%), in France (+0.3%) and in Italy (+0.1%). For Germany, the data are not published yet. The activity in the manufacturing sector remains subdued while in October, the purchasing managers index (PMI) in the services sector is well below its long term average. Over the coming months, the risk of negative spillovers from manufacturing to services needs to be closely monitored. The evolution of the unemployment rate, which on a historical basis is still relatively low, will be a key factor in the short term.
In the 2020 draft budget bill, the government is forecasting a deficit of 3.1% of GDP in 2019 and 2.2% in 2020 (after an observed deficit of 2.5% in 2018). The improvement in the 2020 deficit is misleading for the same reason as the widening of the 2019 deficit. Unlike the 2019 figures, 2020 no longer shows any traces of the one-off fiscal cost of the transformation of the CICE tax credit into reduced employers’ contributions. Excluding exceptional items, the fiscal deficit narrows by 0.1 point each year to 2.1% in 2020. The new 2020 deficit target is nearly a point higher than the one proposed last year in the 2019 draft budget bill. The wider deficit can be attributed in equal proportions to the downward revision of growth forecasts and structural adjustment
The US-China trade conflict and Brexit have been acting as a headwind for growth for a considerable time now. Recent developments have raised expectations that these sources of uncertainty may have peaked. Should it turn out to be the case, this could spur spending by unleashing pent-up demand by companies or households. However, in an environment of slowing global growth and, quoting the IMF, a precarious outlook for next year, we probably will see a more limited reaction, with other sources of concern taking over from the previous ones: uncertainty make have peaked in certain areas, but is likely to migrate to other.
After months of negative surprises, some indicators of the Pulse have migrated to the right hand side of the chart. In particular, the ifo business climate index stabilised in October, whereas the market had expected a further decline. Both ifo and pmi surveys signal a slight improvement in sentiment in manufacturing, although the indices remained deep in contraction territory. This is also confirmed by the continuing weakness of orders in August. Hence, the slight pick-up of industrial activity in that month was probably a statistical blip. The main risk for the economy is that the negative news feed from the export-oriented manufacturing sector is spreading to the domestic economy