- Germany & EA both growing above-potential, inflation rising
- Less inordinate ECB stimulus to be announced this summer
- Rising euro vs. dollar later in 2017 to put pressure on Italy
- Germany to accept fiscal union, or Italexit a risk in 2018-19
- Ultra-cheap euro, huge trade surplus: a cause of Brexit-Trump
- World impatient with prolonged resolution of new euro-crisis
- German domestic imbalances could shrink over 10-15 years
- Baby boomers retire – saving down. Immigration raises capex
The euro area LI continues to put in an above consensus call. It is probably over predicting growth somewhat but its strength is fundamentally underpinned by the newly emerged German locomotive. While German demand often turns out to be derived from others, chiefly China, in this case it is genuine. In fact, this is highlighted by our below consensus Australia call. China’s stimulus has not fed through to a rebound in private demand, although easing PPI deflation is helping manufacturers.
Euro area GDP was a tad disappointing in Q2 but, overall, European data remain solid. We expect above-trend growth (1½%) over the next 12 months, although at a marginally slower pace. Spain has been outperforming the rest of the region while Italy remains the laggard, a trend that is likely to continue. To find out more, click above to watch the video or below for the full report.
Twelve months ago we said 2015 would be a year of ‘deceptive calm’. With the S&P 500 up 5% and US 10-year yields around 5bps higher, you could say our forecast was accurate. Markets spent much of the year in an anxious state, fretting about Greece, then China, then the risk of a synchronised global recession. In 2006 and 2007, LSR had a high conviction that a financial meltdown was about to wreak havoc on the global economy. This time around we stick with our 2015 theme ‘Keep Dancing’ but with no great conviction. Looking ahead to 2016, China...
While markets are fixated on the prospects for emerging markets and whether China’s slowdown will drag down the world economy, a crisis has been brewing in Germany that, according to some commentators, could end Angela Merkel’s reign and reignite the euro crisis. This is probably an exaggeration. Still, it is true that the country’s huge influx of refugees –whom Ms Merkel welcome with open arms –is causing widespread public consternation and undermining the government’s authority. This is a pity because the chancellor’s approach to...
The justified outburst of nerves about China has led the bull market in equities to take a well-earned breather since August – and in the best tradition of economic forecasting, experts’ projections seem to have become a lagging indicator of the stock market. While global manufacturing has much to be concerned with – notably in the German automobile powerhouse – it is far from clear that we should be fearing a recession in the West. Consumers are cheerier than at any time since the peachier phases of the pre-crisis boom, this time with less debt....
Despite the turbulence of the Greek crisis, the euro area government bond market has seemingly remained a haven of peace and contentment. Yields in southern Europe have remained low, the Spanish bonos, for instance, continue to yield over 40bp less than US Treasuries. While this suggests ECB’s temporary success in avoiding the Greek contagion, our analysis shows that contagion channels remain open in the case of Spain despite growth improving in the Spanish economy. With the upcoming general election in Spain later this year, political contagion could pose a bigger...