Summary for the 8th of February 2019


The European Commission publishes the Winter 2019 EconomicForecast (EU and Eurozone). The Commission has considerably adjusted downward the future economic growth of the major european economies. It has forecasted  the GDP growth in the Eurozone to be 1.3% this year, from the last forecasted of 1.9%. The forecast for next year’s growth is 1.6%, unchanged from the last time. The downward adjustment is because of the weaker than anticipated economic growth in the third and fourth quarter of 2018.

The Commission forecasted the real GDP growth in Italy to be 0.2% in 2019 and is expected to pick up to 0.8% in 2020. In the last forecast, the Commission was expecting a growth of about 1% each year. Even though the Italian government has implemented an expansionary fiscal policy, the uncertainty in financing conditions will overshadowed the policy. Italy’s new populist government, and it’s proposed budget that will lead to a higher deficit (estimated 2.4% of GDP), will lead to a decline in the Italian economic activity, which in turn, will lead to higher deficit than estimated 2.4%.

German’s industrial production, November to December, fell by 0.4%. The market was expecting a rise by 0.7%. This shows a slowed activity growth in the German economy at the end of 2018. The fall in the industrial production was mostly in the construction activity, which fell by 4% from the previous month. The activity in this sector is quite volatile, due to weather condition and the lack of labour force. The capital goods output rose by 0.9%, this sector gives a better picture of the underlying trend in the economy. The rise in capital goods outputs was due to a higher activity in the automotive industry which rose by 7%. The automotive industry was having a slow activity since September 2018, due to the new emission regulations. Now it seems like the car producers have adapted to the new regulations.

The Bank of England is keeping the interest rate unchanged at 0.75%. The central bank is expecting a GDP growth of 1.2%, 0.5% lower than forecasted in November 2018. The downward adjustment was due to weaker global economic growth and the Brexit uncertainty. The forecasted inflation is revised down in the short term to reflect a weaker capacity utilization and lower oil price. In the long term, the forecasted inflation is unchanged. The Bank of England will let the inflation rise little over the objective rate of 2% in 2020-2022. The Bank of England is still indicating a gradual and limited interest rate hike.

Indices on 8th of February: A potential prolonged trade conflict between the US and China, weak economic indicators from Europe and risk of the US government shutdown next week have led to decline in the stock market.
Dow: -0.9% (7th of February )
S&P 500: -0.9% (7th of February)
Nasdaq: -1.8% (7th of February)
Nikkei: -0.6% (8th  of February)
STOXX Europe 600 Index: -0.56% (8th  of February)

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Next post will be on Monday, 11th of February

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