German economy stagnates while the EUR continues its fall
14 February

German economy stagnates while the EUR continues its fall


The German economy stagnated in the fourth quarter as both private consumption and state spending lost momentum renewing fears of a recession. Europe’s biggest economy has been losing momentum as its manufacturers linger in a recession prompted by weaker exports, an automotive sector grappling with an expensive shift to electric cars and U.S.-China trade tensions. One bright spot from the data was an upwardly revised third-quarter growth figure to 0.2% from a previously reported 0.1%. The Federal Statistics Office said investments in the construction sector grew in the fourth quarter, while spending on machinery and equipment fell considerably compared with the July to September period. On the year, gross domestic product in Germany expanded by 0.4% from October through December after a 0.6% expansion in the previous three months. Exports also weakened in the final three months of last year. Chancellor Angela Merkel’s government has so far resisted calls for a fiscal stimulus to put the economy firmly back on a growth path. Annegret Kramp-Karrenbauer, who had been long expected to succeed Chancellor Angela Merkel next year, earlier this week gave up her bid to run for the top job, raising more concerns about political stability in the euro zone’s biggest economy.


The dollar’s index hit a four-month high, having risen 1.8% so far this month. The euro fell to as low as $1.0827, its lowest level in almost three years, and last stood at $1.0847. It also hit a nine-week low losing 1% against the British pound and 4.5 year low against the Swiss franc. The euro has been bruised also by rising political uncertainties in Germany as well as worries about sluggish growth in the region. Euro zone GDP data due later is expected show a sluggish growth of 0.1% from the previous quarter.  Sterling jumped and so did UK bond yields as investors bet on a higher-spending budget next month after British Prime Minister Boris Johnson forced the resignation of Sajid Javid as finance minister. Javid, known to have been at odds with Johnson’s powerful policy adviser Dominic Cummings over spending plans, was replaced by Rishi Sunak, a Johnson loyalist. The pound traded at $1.3045, after 0.65% gains yesterday. The Japanese yen stayed in a familiar range in the past couple of weeks and last traded at 109.80 yen while Gold pushed higher.


Asian shares inched higher on course to post the second straight week of gains, helped by hopes governments will make provisions to soften the impact on their economies from the coronavirus epidemic. European shares are expected to rise, with Euro Stoxx 50 up 0.21%, German DAX adding 0.3% and FTSE up 0.21%. MSCI’s Asia-Pacific ticked up 0.25% reaching a weekly gain of 1.77%. China's blue-chip shares rose 0.69%, having recovered a whopping 95% of their losses made after the outbreak. Futures were flat in Hong Kong and Australia, while they fell in Japan as Nikkei dropped 0.59%, not helped by the news of first coronavirus death and signs of a potential rise in domestic infections in the country. On Wall Street, the S&P 500 lost 0.16% yesterday but the uptrend started on Feb 3, seems unstoppable as the Federal Reserve Bank of New York said it will shrink its repurchase-agreement operations sending it above 3380.


Oil prices edged higher for the third consecutive session, on track for their first weekly gain in six weeks, backed by expectations that major producers will implement deeper output cuts to offset slowing demand in China caused by the coronavirus epidemic. Brent was only slightly up, 3 cents at $56.37 a barrel after gaining 1% the previous session and 3.7% higher for the week, the first increase since the week of Jan. 3. U.S. West Texas Intermediate was 24 cents higher at $51.66 a barrel. The contract is now 2.4% higher for the week. Crude prices have plunged about 20% from their 2020 peaks on Jan. 8 as oversupply concerns combined with worries about large fuel demand declines in China as the country’s quarantine to fight the coronavirus outbreak has stymied economic activity. In response to the demand slump, the Organization of the Petroleum Exporting Countries and its allied producers, a grouping known as OPEC+, are considering cutting output by up to 2.3 million barrels per day. The International Energy Agency said that first quarter 2020 oil demand is set to fall versus a year earlier for the first time since the financial crisis in 2009 because of the coronavirus outbreak in China.



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