=> The recent volatility on financial markets, through lower interest rates, was the consequence of lower expectations on global growth after the White House announcements. In the coming week, there will be data on retail sales in the US (15), China (14) and UK (15). These data will show the robustness of the domestic demand. If these data are strong in the US and in China, financial arbitrage may be modified in favor of risky assets
=> GDP growth in Germany will be, in the Euro Area, the most important indicator of the week (14). The industrial production index dropped dramatically in the second quarter (-7.5% at annual rate) and this downturn is consistent with a negative growth figure (probably more than the consensus at -0.1%). The ZEW survey for August (13) will highlight the duration of this drop Employment figures in the Euro Area and the detail for GDP will be released on August the 14th.
=> Employment figures will be important as the unemployment rate is low now (7.5% in June) and the economic dynamics is lower.
German production fell -1.8% in June over one month (excluding construction). It has fallen in 5 of the last 6 quarters and in Q2 the decline is -7.5% annualized rate. The graph, since 2000, does not reassure me, Germany is heading for recession
Is it culture or economics? That question frames much of the debate about contemporary populism. Are Donald Trump’s presidency, Brexit, and the rise of right-wing nativist political parties in continental Europe the consequence of a deepening rift in values between social conservatives and social liberals, with the former having thrown their support behind xenophobic, ethno-nationalist, authoritarian politicians? Or do they reflect many voters’ economic anxiety and insecurity, fueled by financial crises, austerity, and globalization?
Employment increased in the euro area during the first quarter (+ 1.4% annualized). The pace of job creations is solid. However, since the beginning of 2018, productivity has lost momentum and it doesn’t improve. GDP is not growing fast enough in the face of rising employment. The risk is that an external shock from, for example, global trade will penalize activity with after that a quick adjustment on employment. The economy does not create leeway (no productivity gains) that may cushion negative shocks. That’s worrisome.
The cost of the Brexit referendum is becoming increasingly expensive for the British. The GDP’s deviation from its pre-referendum trend continues to widen despite the rebound in growth in Q1 (+ 0.5%). The France is in a more comfortable situation. When will this joke stop off? Because it is the citizens who pay the bill
World trade is slowing down sharply. In the last quarter of 2018 compared to the last quarter of 2017, trade is now up only 1.5% against 3.9% in October. The adjustment is not finished if we follow the Markit indicator of export orders in the USA, Japan and the Eurozone.
Asia is the region that contributes the most to this slowdown. Its 3-month contribution to global import growth was at + 4.8% in September and dropped to -5.3% in December. This persistent shock on trade is the result of the choices made in the White House. The brutality of the movement explains the change in outlook on activity since last summer but also the Fed’s new view on its monetary policy.