Editorial

Euro area, genuine signs of recovery

In the Economic and Monetary Union (EMU), expectations are improving, although they are still a far cry from being euphoric. After two years of recession, and strapped with a very negative output gap, the 18 eurozone member states are just beginning to regain their footing. Eurozone growth is estimated at 1.4% in 2014 and is likely to hold below 2% in 2015. It looks like the recovery will be very gradual, but at least it is no longer leaving behind the countries of southern Europe. Cyclical indicators even picked up strongly in the southern countries during the winter.

US

Considerable period

The US economy remains in a slow-growth regime, insufficient to absorb the large over-capacities. This constrains wages and prices, making it necessary for the Fed to remain highly accommodative. However, at its March meeting, the FOMC sounded more hawkish than we had expected. As we have a less positive view of current economic conditions and prospects, we still expect that the Fed Fund Target will not be raised before early 2016, late 2015 at the earliest. GDP growth will once more prove disappointing in the first half of 2014 and the subsequent rebound will be of limited magnitude. Weaker headwinds – the fiscal policy and the deleveraging – will not turn into tailwinds before long…

Japan

The moment of truth

April’s consumption tax hike will result in a sharp contraction of GDP in Q2 2014. Following substantial losses in purchasing power, consumption is set to remain flat in the second half of 2014 and exports may take over as main engine of GDP growth. The BoJ is unlikely to intensify its asset purchase programme, but might maintain it much longer in order to keep interest rates under control. Fiscal policy is expected to tighten in order to reduce the debt mountain. Inflation, excluding the direct effects of the consumption tax hike, may reach the BoJ’s 2% target in 2016.

United Kingdom

A broad-based growth

It looks like 2014 will be a promising year. Apparently consumption will continue to support growth. Despite ongoing wage moderation, job creations, bolstered by the upturn in activity, should lead to another decline in the unemployment rate. Lower inflation will consolidate household purchasing power and boost confidence. At the same time, the international environment should be a bit more buoyant this year, notably in the eurozone. Consequently, we are forecasting growth of close to 2.8% in 2014, the strongest performance since 2007.

Eurozone

An Island of stability?

The outlook for the eurozone has definitely improved. The recovery seems more balanced among countries and sectors. Domestic demand is strengthening, while the external sector should continue to support growth. Yet, all the headwinds have not disappeared. The pace of the recovery remains weak and unable to rapidly absorb the slack in the economy. The level of inflation remains alarmingly low. Managing high levels of private and public debt in a low growth and low inflation environment is rather complex. Given the state of the economy, further actions from the monetary authority are warranted. Yet, do not expect too much from a divided Council.

Germany

The first 100 days

The year 2014 is off to a roaring start. The new ruling coalition has also rapidly set to work. Proposed bills to introduce a minimum wage and pension reforms have already been prepared and are waiting to be examined by the Bundestag. Growth seems to have accelerated strongly, based on the first available statistics and survey results. China’s economic slowdown and the Ukrainian crisis could hamper the recovery as of Q2, although there is nothing alarming about the situation so far. We are forecasting GDP growth of about 2% in 2014 after only 0.5% in 2013.

France

Lagging behind

The French economy is recovering, but only very slowly. From an average annual growth rate of 0.3% in 2013, after 0% in 2012, French GDP growth is expected to reach 0.8% in 2014 and 1.3% in 2015. Difficulties restoring confidence, fiscal consolidation, low competitiveness and high unemployment are all factors hampering a more vigorous recovery, even though progress has been made in terms of reforms and supply-side policies. These headwinds also explain why the French recovery seems to be lagging behind the rest of the Eurozone, where growth is expected to accelerate from -0.4% in 2013 to 1.4% in 2014 and 1.6% in 2015.

Italy

New ambitions

With nearly five percentage of real GDP lost through the nine-quarter recession that finally ended in Q3 2013, Italy faces a new and challenging phase. But not just on the economic front, as a new Prime Minister was recently swore in : the 39 year-old Matteo Renzi. More than a mere post-recession recovery, the goals of the new government aims at an overall remodeling of the country. Ambitious plans are going to reckon with both the stringent rules of the European Fiscal Compact and entrenched resistances from some domestic vested interests. A first test will come from the implementation and the financing of a stimulus package worth more than 1% of the GDP.

Spain

Recovery is on track

The rebound in domestic demand should enable growth to accelerate in the years ahead, even though the Spanish economy will remain largely dependent on exports. The new job market flexibility should boost employment, but the impact on consumption will probably be small: most new jobs will be precarious while massive unemployment will continue to hold down wages. Under these conditions, inflation will remain low. In terms of public finances, consolidation efforts should continue in 2014 but the election calendar in 2015 is likely to hurt Spain’s chances of meeting its budget reduction targets next year.

Brazil

Slow deterioration

In a less favourable macroeconomic and macro-financial backdrop for the emerging countries, the weaknesses of the Brazilian economy are becoming increasingly apparent. Inflationary pressures and the deterioration of public finances reflect the limits of Brazil’s growth model and increasingly highlight the need for vital reforms that the electoral calendar keeps pushing back, at least until next year. In the meantime, the lack of visibility could strain investor confidence and undermine the country’s external equilibrium.

Russia

Running out of steam

2013 turned out to be a year of an unexpectedly lacklustre growth, marked by weak investment activity and decelerating private consumption. And despite a marginal improvement in the economic activity in February, prospects for 2014 look worrisome. As a result of poor macroeconomic performance and diplomatic crisis with Ukraine, the rouble depreciated, and the Central bank increased its policy rates. Already high inflation may accelerate with the rouble deprecation, while higher interest rates will weight on domestic demand. At the very best, the economy will experience stagflation, with risks of recession linked to a significant net capital outflow, triggered by geopolitical uncertainties.

India

Progress on the eve of elections

To face up to difficulties, the Indian government has taken short-term measures rather than true in-depth reforms. External vulnerability has diminished sharply, but this is due to the decline in economic activity and import restrictions. The deficit of central administrations should decline, but under the impact of cutbacks in capital expenditure. Exports are driving growth as domestic demand struggles to pick up. Business leaders and investors are both waiting for the results of the next elections. The need for reforms is more urgent than ever. Unfortunately, the formation of a coalition government seems highly probable.

China

An economic policy with multiple goals

After rebounding in Q3 2013, economic growth decelerated as of Q4 and the slowdown worsened in early 2014. Looking beyond temporary and external factors, this slowdown fits within the structural change of the Chinese economy that the authorities are gradually orchestrating (reduction in overcapacities, moderation in the domestic debt increase, etc.). In the short term, the industry should begin to benefit from the recovery in world demand and fiscal policy is also likely to stimulate growth. In contrast, the central bank has no other choice but to continue slowly tightening credit conditions, in a context of sharply increasing corporate default risks.

Greece

Bottoming up

After six years of recession, the Greek economy is poised for recovery. We are looking for a rebound that should be mild at first, fuelled by exports and investments, before gaining steam in 2015 with the improvement in the job market. In terms of public finances, Greece has already accomplished the lion’s share of its adjustment programme and reported a primary surplus in 2013, a year ahead of the initial target. Theoretically, this performance opens the door to new restructuring of official European loans. Yet political uncertainty arising from the 2014 electoral calendar argues for holding off for a while. Any new arrangements on the Greek debt should not happen before mid-2015.

Turkey

Tunnel or toboggan?

Once acclaimed for its stability, Turkey is now in the midst of the worst socio-political crisis since the AKP rose to power in 2002. Hopefully the situation can be resolved at the ballot box as the electoral cycle culminates with the presidential election in August. Already shunned by international investors since the Fed announced the tapering of QE3 at the end of May 2013, Turkey has been hit by intense financial stress since mid-December. The central bank’s belated but energetic response has reassured the markets. Economic activity is still resilient, but the year 2014 looks tough and chaotic. Although we cannot rule out a bout of recession, the Turkish economy has a strong capacity to rebound.

General Risk Warning for stocks, cryptocurrencies, ETP, FX & CFD Trading. Investment assets are leveraged products. Trading related to foreign exchange, commodities, financial indices, stocks, ETP, cryptocurrencies, and other underlying variables carry a high level of risk and can result in the loss of all of your investment. As such, variable investments may not be appropriate for all investors. You should not invest money that you cannot afford to lose. Before deciding to trade, you should become aware of all the risks associated with trading, and seek advice from an independent and suitably licensed financial advisor. Under no circumstances shall Witbrew LLC and associates have any liability to any person or entity for (a) any loss or damage in whole or part caused by, resulting from, or relating to any transactions related to investment trading or (b) any direct, indirect, special, consequential or incidental damages whatsoever.

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD holds above 0.6500 in thin trading

AUD/USD holds above 0.6500 in thin trading

The Australian Dollar managed to recover ground against its American rival after AUD/USD fell to 0.6484. The upbeat tone of Wall Street underpinned the Aussie despite broad US Dollar strength and tepid Australian data.

AUD/USD News

EUR/USD comfortable below 1.0800 lower lows at sight

EUR/USD comfortable below 1.0800 lower lows at sight

The EUR/USD pair lost ground on Thursday and settled near a fresh March low of 1.0774. Strong US data and hawkish Fed speakers comments lead the way ahead of the release of the US PCE Price Index on Friday.

EUR/USD News

Gold pulls away from daily highs, holds above $2,200

Gold pulls away from daily highs, holds above $2,200

Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays near 4.2% after upbeat US data and makes it difficult for XAU/USD to gather further bullish momentum.

Gold News

Google starts indexing Bitcoin addresses

Google starts indexing Bitcoin addresses

Bitcoin address data is live on Google search results after users realized on Thursday that the tech giant started indexing Bitcoin blockchain data. However, mixed reactions have followed the tech giant's reversed stance on the cryptocurrency.

Read more

A Hollywood ending for fourth quarter GDP

A Hollywood ending for fourth quarter GDP

The latest revisions put Q4 GDP at 3.4%, the second fastest quarterly growth rate in two years. Much of the upside was attributable to stronger consumer spending, yet fresh profits data affirmed it was a good quarter for the bottom line as well with profits up by the most since the Q2-2022.

Read more

Majors

Cryptocurrencies

Signatures