As two of the largest exporting nations struggle, forecasts are being rewritten
18 February

As two of the largest exporting nations struggle, forecasts are being rewritten

Germany, the world’s fourth largest economy, is expected to stumble as the coronavirus epidemic and a slump in trade with China combine with weak consumer demand to drag growth lower. The German central bank, the Bundesbank, said the country’s major industrial sectors – from cars to chemicals – were continuing to see a fall in orders “albeit with a decrease in intensity”. The news comes after Japan’s economy shrank 6.3% in the last quarter. With two of the largest exporting nations signalling that they are in trouble, economists have begun to rewrite their forecasts for growth for the global economy in 2020. The euro area more broadly is expected to grow by 1.2% in 2020, only modestly better than the 1.1% growth rate registered in 2019. Among major economies, the UK is expected to outpace Italy and Japan, at least during 2020 although the latter might get a boost from the Tokyo Olympic Games later this year.

 

Oil prices fell tracking losses in financial markets on lingering concerns over the economic impact of the coronavirus outbreak in China and its effect on oil demand. Brent was at $56.47 a barrel, down 1.20$, while U.S. West Texas Intermediate fell 58 cents to $51.47 a barrel. The International Energy Agency said last week the virus was set to cause oil demand to fall by 435,000 barrels per day year-on-year in the first quarter, in what would be the first quarterly drop since the financial crisis in 2009. Still, with some Chinese independent refineries snapping up crude supplies after being absent from the market for weeks, traders held out hopes that China’s demand could recover in coming months. 

Oil output from Libya has fallen sharply since Jan. 18 because of a blockade of ports and oil fields by groups loyal to eastern-based commander Khalifa Haftar. The EU meanwhile decided to deploy warships to enforce an arms embargo off its coast after Austria lifted its veto.

 

The Aussie dollar has been hurt by the spread of the coronavirus, which is seen as impacting Chinese demand for Australian commodities. It is among the worst-performing Group-of-10 currencies this year, leading losses alongside fellow risk-sensitive currencies the New Zealand dollar and Norwegian krone, having dropped more than 4% in 2020. Following the wildfires crises, there is increasing pressure to switch to a greener economy which could smoothen out the dependence on the Chinese economy - where Australia sells most of its iron and coal - and link it closer to the domestic demand. The AUD was buying over 0.7$ at boxing day but has now fallen to 0.6676$. The RBA is still likely to have one more rate cut this year which could come as early as March depending on how the economy performs particularly on inflation and employment.

 

Britain will not be threatened into following EU rules in the future by talk of economic rifts and is ready to trade with the bloc on basic international terms if needs be, Prime Minister Boris Johnson’s Europe adviser David Frost said. Britain left the EU last month and the two sides will now start negotiating a new relationship from trade to security. Should that not be possible because of the bloc’s insistence that Britain aligns itself with EU rules ahead, Frost said that London was ready to trade with the 27-union according to the same basic international rules as Europe now follows with Australia. The speech came as a response to one delivered recently in London by the President of the European Commission Ursula von der Leyen, who called on Johnson to agree to so-called level playing field guarantees of fair competition based on ambitious environmental and labour standards. Sterling has been making strong gains against the euro which now trades at 0.833GBP compared to 0.9316GBP last July but has retracted since Frost’s comments.

 

 

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