It’s GDP day in Europe, with readings of economic output due out from France, Germany and the eurozone – which is expected to show growth for the first time since the third quarter of 2011.
First up, France.
The data that just hit will be a boost to President François Hollande – the French economy has just posted its best quarterly expansion since he took office.
According to a first reading, gross domestic product grew by 0.5 per cent in the three months ended in June, stronger than the 0.2 per cent economists had expected and compared with a 0.2 per cent contraction in the prior quarter.
From the statement from national statistics office Insee: Read More
Fitch Ratings has downgraded France’s Long-term foreign and local currency Issuer Default Ratings (IDR) to ‘AA+’ from ‘AAA’. The Outlook is Stable. At the same time, the agency has affirmed France’s Short-term foreign currency IDR at ‘F1+’ and the Country Ceiling at ‘AAA’.
KEY RATING DRIVERS
The downgrade of France’s foreign and local currency IDRs reflects the following key rating drivers and their relative weights:
– Fitch now forecasts general government gross debt (GGGD) to peak higher at 96% of GDP in 2014 and decline only gradually over the long term, remaining at 92% in 2017. This compares with Fitch’s previous projections in December 2012 of GGGD peaking at 94% (and 92% when it first revised the Outlook to Negative in December 2011), and declining more rapidly to below 90% by 2017.
– The agency commented at the time of its previous rating review that this was the limit of the level of indebtedness consistent with France retaining its ‘AAA’ status assuming debt was firmly placed on a downward path from 2014. Its projections for France’s GGGD ratio are significantly higher than the ‘AAA’ median of 49% and ‘AA’ median of 27%. The only ‘AAA’ country with a higher debt ratio is the US (AAA/Negative), which has exceptional financing flexibility and debt tolerance afforded by the preeminent global reserve currency status of the US dollar.
– Risks to the agency’s fiscal projections lie mainly to the downside, owing to the uncertain growth outlook and the ongoing eurozone crisis, even assuming no wavering in commitment to fiscal consolidation. A debt ratio that is higher for longer reduces the fiscal space to absorb further adverse shocks. Read More
Free-trade talks between the US and the EU that could boost their collective economies by more than $100 billion a year started in Washington today.
Despite conflicts over the recent NSA government surveillance scandal and a long-running disagreement between the US’s Boeing and Airbus in Europe, progress got underway towards what would be the world’s biggest free-trade deal.
The proposed Transatlantic Trade and Investment Partnership pact would cover about 50 per cent of global economic output, 30 per cent of global trade and 20 per cent of global foreign direct investment.
The United States and the European Union are already each other’s top trade and investment partners, with two-way trade between the bodies estimated at around $650 billion last year. Read More
In a bid to attract investment from Non-resident Indians (NRIs), India is considering introducing “diaspora bonds” to facilitate greater inflow of funds in the infrastructure sector.
Overseas Indian affairs minister Vayalar Ravi said the government was examining longer-term investment instruments for the overseas Indians so that the community can participate and benefit from India’s “growth story”.
“The bulk of diaspora investments are in portfolio investments of a short-term nature. We are considering longer term investment instruments like ‘diaspora bonds´ to provide opportunities for overseas Indians,” Ravi said, addressing the fifth biennial diaspora conference.
Underlining the need for greater two-way engagement between India and its diaspora, Ravi said the government has initiated a number of initiatives to ensure greater participation of the community in economy of the country. Read More
If demography is destiny, it may be clear within five years that ageing Germany is going the way of Japan. Within 20 years it may equally be clear France and Britain are regaining their 19th century role as the two dominant powers of Europe, albeit a diminished prize.
The European Commission’s 2012 Ageing Report says Germany’s population will shrink from 82m to 66m over the next half century due to social structures that cause low fertility, while France jumps to 74m and Britain to 79m. This is out of date already since the German census revealed in May that the country has 1.5m fewer inhabitants than thought. They miscounted foreigners going home. The total is down to 80.2m.
The old age dependency ratio will jump from 31pc in 2010, to 36pc in 2020, with the workforce shrinking by 200,000 a year this decade. The ratio will climb to 41pc in 2025, 48pc in 2030, and 57pc in 2045. The UK and France will see a much gentler rise. Read More
* Manufacturers’ sentiment index +15, non-manufacturers +20
* Companies’ outlook seen up further despite market swings
* ‘Abenomics’ raises mood but impact on real economy lags
* Reuters poll suggests improvement in BOJ June tankan
Japanese manufacturers’ mood improved further in June and its gauge reached its highest level in more than two years, a Reuters poll showed, a sign government’s reflationary policies keep bolstering business morale despite recent market turmoil.
Xiang Huaicheng said that the extent of debt among the 10,000 financing arms operating on behalf of China’s local governments was difficult to calculate.
“It seems the central government’s debt level is quite transparent, while local government debt isn’t, and therefore it’s not easy to get a clear picture,” he told delegates at the Boao Forum this weekend.
Mr Xiang said that based on his calculations, local governments in China may have amassed more than 20 trillion yuan (£2.1 trillion) of debt, almost double the figure given in a 2011 report by the National Audit Office.
However, Mr Xiang, who served as China’s finance minister for five years in the aftermath of the 1998 Asian financial crisis, told the audience that the country’s debt pile posed no immediate threat because it still represented a small figure relative to its rapidly rising economic output. Read More
The world’s leading central banks should maintain or strengthen expansionary monetary policy to support their economies, even as there are risks of asset-price bubbles, the Organization for Economic Cooperation and Development said.
“Given limited fiscal space in most OECD countries, monetary policy remains a key instrument for supporting demand,” the OECD said Thursday in its interim assessment of the Group of Seven leading economies.
There is a risk of investor sentiment getting ahead of fundamentals and of monetary policy encouraging excessive risk-taking, the OECD said. But low inflation in most major economies means exceptional measures can and should remain in place, or be pursued further, it said. Read More