Overview of the week commencing 28 August

Blog  |     |   by Graham Cross

Graham Cross, CEO

Graham Cross, CEO

 

This week we focus on the German economy.

 

According to the Centre for European Economic Research, the ‘ZEW Indicator of Economic Sentiment for Germany fell considerably by 7.5 points in August 2017 and now stands at 10.0 points. The indicator thus remains significantly below the long-term average of 23.8 points’. Those falls reflect ‘the high degree of nervousness over the future path of growth in Germany. Both weaker than expected German exports as well as the widening scandal in the German automobile sector in particular have helped contribute to this situation’.

 

The prospect of materially weaker ties with the UK – Germany’s third biggest trading partner (after the US and France) – is having a bit of an impact on business sentiment. Having said that, the bottom line is that ‘overall, the economic outlook still remains relatively stable at a fairly high level’.

 

Germany’s economy is expanding at a comparatively healthy pace. Last week, the Bundesbank reported an expansion in the region of 0.6 percent during Q2 to bring the year-on-year rate to 2.1 percent. That’s a faster pace than all other G7 nations barring Canada.

 

And while inflation in the Eurozone averages just 1.3 percent and we in the UK struggle with inflation as high as 2.6 percent, German consumer prices are rising in line with the target rate. Of course, the outlook isn’t without its challenges, but what makes us most bullish about the German economy is its ability to withstand the next shock. Unemployment is low at 3.8 percent and the government budget is in surplus.

 

Right now, Germany looks like a good long-term bet.

 

Elsewhere, Japanese consumer prices increased at a year-on-year rate of 0.5 percent during July, up from 0.4 percent in June. Price increases have been positive for seven consecutive months now. That’s good news, though the 2.0 percent target still feels out of reach.

 

Meanwhile, the Spanish economy is motoring along. The most recent data reveals a 3.1 percent increase compared with the same time a year ago. An improving economy is evidenced by a further fall in the rate of unemployment. Not long ago, nearly a quarter of those that wanted a job were unable to find one. Now that number is equivalent to 17.2 percent.

 


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