German businesses defied sovereign debt worries as the Ifo index rebounded in June. The headline index increased to 101.8, from 101.5; its highest level since May 2008. The current assessment continued its recent upward trend and increased to 101.1, from 99.4. At the same time, the expectations component dropped for the second consecutive month, decreasing to 102.4, from 103.7.
Right now, the only worry of the German economy should be sluggish domestic demand. The export engine is humming and should make the second quarter a real smash. For the time being, the inventory cycle, strong global demand and the weak euro will continue to support the export-led recovery. Some unexpected support for the German economy could now come from the Far East. The Chinese announcement to allow for a more flexible currency - if implemented - would benefit German exports. China has significantly gained importance as an export destination. Over the last year, German exports to China have increased by almost 70%.
Today’s Ifo reading shows that grass-rooted German businesses seem to be looking through the sovereign debt worries and recent market turmoil. They keep it simple and look at the upshots of the current crisis: the weaker euro. Of course, the current growth dynamics will slow down eventually. However, for the time being, the German export engine is running smoothly, making Germany the economic powerhouse of the Eurozone.
Tuesday, June 22, 2010
Friday, June 11, 2010
Masterly reticent
After months and months of exciting and surprising ECB press conferences, today’s meeting brought some welcome boredom. As expected, the ECB kept interest rates unchanged at today’s meeting. The most important announcement came on the ECB’s liquidity provision: the ECB decided to return its 3-months LTROs to crisis mode of full allotment and fixed rates until the end of September.
The ECB’s assessment of the economy and the inflation outlook were almost a verbatim copy of the May assessment. The recovery remains on track and the ECB has become more positive on the first half of the year. However, president Trichet continued to stress unusually high uncertainty. Turning to inflation, President Trichet reiterated last month’s distinction between headline inflation and domestic price pressures. While strong global growth and energy prices could still lead to higher headline inflation, the ECB expects domestic price pressure to remain low.
This cautiously positive outlook was confirmed by the latest ECB staff projections. For 2010, both the growth and inflation outlook were slightly revised upwards from the March forecasts. For 2011, growth expectations have been lowered. In detail, ECB staff expects GDP growth to come in at 1.0% in 2010 and 1.2% in 2011 (from 0.8% and 1.5%). As regards inflation, ECB staff now expects headline inflation at 1.5% in 2010 (from 1.2%) and 1.6% (from 1.5%) in 2011. Inflationary pressure looks different. It did not come as a surprise that the current level of interest rates remains “appropriate” – a clear hint of the ECB’s intent to keep rates on hold in the near term.
As expected, most questions at today’s press conference were on the ECB’s de facto quantitative easing and the clumsy communication around it. Trichet repeated earlier comments and speeches, stressing that the bond purchase programme was necessary to ensure an effective functioning of monetary transmission in all market segments. He did not give any additional details on the planned total amount of the programme or the regional focus. To ensure that certain Bundesbankers do not get overcome with fear of hyperinflation, Trichet emphasised the ECB’s determination to maintain price stability. The ECB remains “inflexibly attached to price stability”.
Trichet also stressed the sterilisation of the bond purchases. However, it is rather a pseudo sterilisation if banks can still get abundant liquidity at the ECB. And this will not change soon. Today, the ECB announced it would extend the 3-month LTROs with full allotment and fixed rates until the end of September. Possible liquidity needs stemming from the maturing one-year LTRO at the end of June will be smoothed. Moreover, the high level of deposits at the ECB does not only reflect increased money market tensions but should also work as a buffer. In fact, this implies that ample liquidity will remain in the interbank market until the end of the year.
To sum up, the ECB has again moved into a wait-and-see position. The ECB confirmed its inflation-fighting spirit, while at the same time providing ample liquidity at least until the end of the year. After several u-turns, clumsy communication and sharp criticism, the ECB today tried to recover its old poise. President Trichet was back in shape, being masterly reticent.
The ECB’s assessment of the economy and the inflation outlook were almost a verbatim copy of the May assessment. The recovery remains on track and the ECB has become more positive on the first half of the year. However, president Trichet continued to stress unusually high uncertainty. Turning to inflation, President Trichet reiterated last month’s distinction between headline inflation and domestic price pressures. While strong global growth and energy prices could still lead to higher headline inflation, the ECB expects domestic price pressure to remain low.
This cautiously positive outlook was confirmed by the latest ECB staff projections. For 2010, both the growth and inflation outlook were slightly revised upwards from the March forecasts. For 2011, growth expectations have been lowered. In detail, ECB staff expects GDP growth to come in at 1.0% in 2010 and 1.2% in 2011 (from 0.8% and 1.5%). As regards inflation, ECB staff now expects headline inflation at 1.5% in 2010 (from 1.2%) and 1.6% (from 1.5%) in 2011. Inflationary pressure looks different. It did not come as a surprise that the current level of interest rates remains “appropriate” – a clear hint of the ECB’s intent to keep rates on hold in the near term.
As expected, most questions at today’s press conference were on the ECB’s de facto quantitative easing and the clumsy communication around it. Trichet repeated earlier comments and speeches, stressing that the bond purchase programme was necessary to ensure an effective functioning of monetary transmission in all market segments. He did not give any additional details on the planned total amount of the programme or the regional focus. To ensure that certain Bundesbankers do not get overcome with fear of hyperinflation, Trichet emphasised the ECB’s determination to maintain price stability. The ECB remains “inflexibly attached to price stability”.
Trichet also stressed the sterilisation of the bond purchases. However, it is rather a pseudo sterilisation if banks can still get abundant liquidity at the ECB. And this will not change soon. Today, the ECB announced it would extend the 3-month LTROs with full allotment and fixed rates until the end of September. Possible liquidity needs stemming from the maturing one-year LTRO at the end of June will be smoothed. Moreover, the high level of deposits at the ECB does not only reflect increased money market tensions but should also work as a buffer. In fact, this implies that ample liquidity will remain in the interbank market until the end of the year.
To sum up, the ECB has again moved into a wait-and-see position. The ECB confirmed its inflation-fighting spirit, while at the same time providing ample liquidity at least until the end of the year. After several u-turns, clumsy communication and sharp criticism, the ECB today tried to recover its old poise. President Trichet was back in shape, being masterly reticent.
Thursday, June 10, 2010
Europees spaarkampioen
Duitsers zijn zuinig. In een land waar harddiscounters zoals Aldi en Lidl bijna 50 procent marktaandeel hebben en grote mediawinkels met de slogan 'Geiz ist geil' (gierig is geil) klanten lokken, is spaarzaamheid volkssport. In heel Europa staat Duitsland met bondskanselier Angela Merkel sinds de Griekse crisis bekend als Europees spaarkampioen. Met het grootste bezuinigingspakket uit de geschiedenis van het land probeert de Duitse regering nu Europa een nieuwe les te leren.
De Duitse regering wil tot 2014 rond 80 miljard euro bezuinigen. Dat is fors, en meer dan 3 procent van het bruto binnenlands product is niet niks. Bespaard wordt vooral op sociale zekerheid, de publieke sector en defensie. Maar ook het bedrijfsleven moet meedoen. De regering wil een belasting op financiële transacties introduceren. Het liefst in Europese samenwerking, maar desnoods ook alleen. Bovendien komen er hogere lasten voor kernenergie en een vliegtaks. Op het eerste gezicht een uitgebalanceerd plan, maar de verwachte hogere inkomsten zijn nog steeds luchtspiegelingen, de bezuinigingen op sociale zekerheid zijn concreet.
Met de bezuinigingen toont Merkel vastberadenheid. Toch ontbreekt weer moed. De regering heeft alleen dat gedaan waarvoor het afgelopen jaar is gekozen. Iets te veel bezuinigd om het pakket nog sociaal te kunnen noemen, iets te weinig subsidies voor bedrijven gekort, maar ook geen nieuwe lasten voor de grote meerderheid. Vlees noch vis dus. Er komt geen verhoging van de btw of de inkomstenbelasting, de regering houdt zich aan de grondwettelijke schuldrem en op onderwijs wordt ook niet bezuinigd.
De regering heeft een kans gemist om brede steun bij de bevolking te krijgen. Het sociaal klimaat zal kouder worden. Er was nochtans niet veel nodig geweest. Denk maar aan een tijdelijke vermogensbelasting of een tijdelijke verhoging van het hoogste inkomenstarief. De regering heeft de kans voorbij laten gaan om subsidies en aftrekposten aan te pakken en een bredere hervorming van het belastingstelsel op te zetten.
In het binnenland zal de regering door de nieuwe plannen moeilijk scoren. Er bestaat zelfs het risico op een grotere kloof tussen arm en rijk. In Europa heeft de Duitse regering nu betere kaarten. Het begrotingstekort duikt met de nieuwe maatregelen waarschijnlijk al in 2012 weer onder de Maastrichtgrens van 3 procent. En dat als een van de eerste in de eurozone. Dat is morele steun voor de Zuid-Europese landen, maar verhoogt vooral de druk op landen als België, Nederland en Frankrijk om ambitieus te bezuinigen. De Europese spaarkampioen geeft een duidelijk signaal: ook wij knippen bonnetjes en gaan voor in de gang naar de Aldi.
Deze column verscheen eerder in het Belgische dagblad "De Tijd"
De Duitse regering wil tot 2014 rond 80 miljard euro bezuinigen. Dat is fors, en meer dan 3 procent van het bruto binnenlands product is niet niks. Bespaard wordt vooral op sociale zekerheid, de publieke sector en defensie. Maar ook het bedrijfsleven moet meedoen. De regering wil een belasting op financiële transacties introduceren. Het liefst in Europese samenwerking, maar desnoods ook alleen. Bovendien komen er hogere lasten voor kernenergie en een vliegtaks. Op het eerste gezicht een uitgebalanceerd plan, maar de verwachte hogere inkomsten zijn nog steeds luchtspiegelingen, de bezuinigingen op sociale zekerheid zijn concreet.
Met de bezuinigingen toont Merkel vastberadenheid. Toch ontbreekt weer moed. De regering heeft alleen dat gedaan waarvoor het afgelopen jaar is gekozen. Iets te veel bezuinigd om het pakket nog sociaal te kunnen noemen, iets te weinig subsidies voor bedrijven gekort, maar ook geen nieuwe lasten voor de grote meerderheid. Vlees noch vis dus. Er komt geen verhoging van de btw of de inkomstenbelasting, de regering houdt zich aan de grondwettelijke schuldrem en op onderwijs wordt ook niet bezuinigd.
De regering heeft een kans gemist om brede steun bij de bevolking te krijgen. Het sociaal klimaat zal kouder worden. Er was nochtans niet veel nodig geweest. Denk maar aan een tijdelijke vermogensbelasting of een tijdelijke verhoging van het hoogste inkomenstarief. De regering heeft de kans voorbij laten gaan om subsidies en aftrekposten aan te pakken en een bredere hervorming van het belastingstelsel op te zetten.
In het binnenland zal de regering door de nieuwe plannen moeilijk scoren. Er bestaat zelfs het risico op een grotere kloof tussen arm en rijk. In Europa heeft de Duitse regering nu betere kaarten. Het begrotingstekort duikt met de nieuwe maatregelen waarschijnlijk al in 2012 weer onder de Maastrichtgrens van 3 procent. En dat als een van de eerste in de eurozone. Dat is morele steun voor de Zuid-Europese landen, maar verhoogt vooral de druk op landen als België, Nederland en Frankrijk om ambitieus te bezuinigen. De Europese spaarkampioen geeft een duidelijk signaal: ook wij knippen bonnetjes en gaan voor in de gang naar de Aldi.
Deze column verscheen eerder in het Belgische dagblad "De Tijd"
Tuesday, June 1, 2010
Spring revival continues
German unemployment decreased by a non-seasonally adjusted 164,800 in May. Officially, 3.242 million Germans are currently unemployed. This is the lowest level since November 2009. In seasonally-adjusted terms, unemployment dropped by 45,000, pushing the seasonally-adjusted unemployment rate to 7.7%, from 7.8% in April. This is the lowest unemployment rate since December 2008 and illustrates the strong Spring revival of the German labour market.
The bogey of mass unemployment has been shooed away. Successful labour market reforms, the government’s famous crisis tool of short-work schemes and companies’ prudence have made the labour market the bright spot of the recession. Even better, the labour market seems to turn much earlier than many had thought. Leading indicators, historical evidence and latest promising recruitment plans all suggest that the current positive trend on the German labour market will continue in the coming months. It should only be a matter of a few months before the unemployment rate returns to its pre-crisis level.
Despite the labour market’s success story, policy complacency would be misplaced. The positive trend of recent months should be used to unwind the labour market crisis measures and to return to active employment growth policies. In this context, the recent decision from the German government to extend the famous short-work schemes once again until March 2012 was the easiest but probably also most dangerous solution. It only postpones but does not solve the exit problem.
The bogey of mass unemployment has been shooed away. Successful labour market reforms, the government’s famous crisis tool of short-work schemes and companies’ prudence have made the labour market the bright spot of the recession. Even better, the labour market seems to turn much earlier than many had thought. Leading indicators, historical evidence and latest promising recruitment plans all suggest that the current positive trend on the German labour market will continue in the coming months. It should only be a matter of a few months before the unemployment rate returns to its pre-crisis level.
Despite the labour market’s success story, policy complacency would be misplaced. The positive trend of recent months should be used to unwind the labour market crisis measures and to return to active employment growth policies. In this context, the recent decision from the German government to extend the famous short-work schemes once again until March 2012 was the easiest but probably also most dangerous solution. It only postpones but does not solve the exit problem.
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