Argentina and the IMF reached a preliminary agreement on 7 June for a three-year USD 50 billion stand-by arrangement that will keep the economy afloat as the government pushes through economic reforms. While the final agreement is still subject to approval by the IMF board, the government pledged to now accelerate economic reforms, including reforming the Central Bank charter, reducing currency interventions and achieving a primary fiscal surplus by the year 2021. These measures are intended to make the economy more resilient to economic shocks and capable of achieving faster economic growth in the medium and long term. However, the tough reforms and fiscal consolidation are expected to have a negative impact on economic growth in the short term and weigh on the ongoing economic recovery. GDP is expected to have expanded solidly in the first quarter due to buoyant growth in the domestic economy. Economic growth is expected to slow sharply from 2017’s strong expansion due to fiscal consolidation measures, restrictive credit conditions and the pass-through effect of higher inflation on private consumption. Panelists participating in the LatinFocus Consensus Forecast foresee the economy expanding 1.7% in 2018, which is down 0.6 percentage points from last month’s forecast. For 2019, growth is expected to reach 2.5%.

National inflation inched up from 25.4% in March to 25.5% in April. Inflation is expected to remain above the Central Bank’s inflation targets for 2018 and 2019 as a weaker currency and expected subsidy cuts in public utilities will stoke price pressures going forward. Panelists expect national inflation to end 2018 at 27.4%, which is up 3.7 percentage points from last month’s forecast. For 2019, inflation is seen moderating to 19.2%.

The monthly indicator for economic activity (EMAE, Estimador Mensual de Actividad Económica) slowed notably in March, registering a 1.4% expansion in annual terms, a sizeable moderation from February’s revised 5.0% increase (previously reported: +5.1% year-on-year). This was the slowest pace of growth since April 2017; it nonetheless marked the thirteenth consecutive month of economic expansion in Argentina. The slowdown was driven by contractions or weaker growth in most of the components of the index. Notably, economic activity in agriculture, livestock, hunting and forestry contracted 5.5% year-on-year in March (February: +3.3% yoy). Meanwhile, growth in the manufacturing industry eased to 0.8% (February: +5.9% yoy). Construction activity also slowed, expanding 5.9% in March (February: +12.7% yoy), and financial intermediation growth moderated to +3.3% (February: +7.6% yoy). A seasonally-adjusted month-on-month comparison showed that economic activity contracted for the second consecutive month, falling 0.1% in March, following a 0.2% contraction in February. Lastly, average economic activity in March remained unchanged at February’s two-year high of 3.6%.

At its latest bimonthly meeting held on 22 May, the Central Bank of Argentina (Banco Central de la República Argentina, BCRA) decided to leave the 7-day repo reference rate unchanged at an all-time high of 40.00%. The decision was widely expected by market analysts, as the Bank tried to settle markets by restoring confidence following weeks of financial volatility and a sell-off of the currency in the past few weeks. The Argentine peso came under severe pressure due to growing expectations of faster-than-expected monetary policy normalization in the United States. The latest rate decision also came against a backdrop of double-digit inflation. According to the National Statistics Institute (INDEC), national consumer prices rose 2.7% over the previous month in April (March: +2.3% month-onmonth) on the back of cuts in government subsidies. National inflation ticked up from 25.4% in March to 25.5% in April. According to the Bank, the sharp depreciation of the Argentine peso observed in the first two weeks of May will contribute in fanning price pressures going forward and consequently Monetary Policy Rate | in % Note: 7-day Repo Reference Rate in %. Source: Central Bank of the Argentine Republic (Banco Central de la República Argentina). 22 26 30 34 38 42 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 % Inflation | Consumer Price Index Note: Annual and monthly var. of Buenos Aires consumer price index in %. Source: Statistical Institute of the City of Buenos Aires. 20 30 40 50 -4.0 0.0 4.0 8.0 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Month-on-month (left scale) Year-on-year (right scale) % % Consumer Confidence Note: Monthly consumer confidence index. Values above 50 indicate an optimistic assesment in consumer sentiment while values below 50 indicate a pessimistic assesment. Source: Universidad Torcuato di Tella (UTDT). 35 40 45 50 55 May-16 Nov-16 May-17 Nov-17 May-18 FOCUSECONOMICS Argentina LatinFocus Consensus Forecast | 24 June 2018 warrant tight monetary conditions. The Bank saw the current monetary stance as appropriate to impede a further sell-off of the peso and prevent a further depreciation, which would translate into higher inflation. The Central Bank reiterated its commitment to conducive monetary policy, with the objective of achieving the 15.0% inflation target by the end of the year. A timeframe, however, was not provided, and future rate decisions will depend on developments in financial markets. The BCRA also stressed its willingness to normalize monetary policy as financial turbulence and uncertainty dissipates. On average, Panelists participating in the LatinFocus Consensus Forecast see the 7-day repo repurchase rate ending 2018 at 31.38%. They see the 7-day repo repurchase rate easing further in 2019, closing the year at 23.24%.

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Splitting Up California is The Right Thing To Do...

A proposal to split California into 3 states will be on November’s ballot and I support this. While I do not work or live in California I do know the economic problems at hand. And that’s just the start of it. I have to admit I preferred Tim Draper’s idea of 6 California’s w/ San Francisco becoming a tax-free Monte Carlo type area...

But now...."NorCal" can sell water, wine and weed..."SoCal" can survive off taxing the masses, taxing the boarders, farming and ag....and "California" (which will include LA and Santa Barbara) can export Hollywood and tourism....

All kidding aside lets seriously think about this. Imagine if the state of Georgia encompassed South Carolina, North Carolina, Tennessee, Virginia and DC. Despite the fact that I have forever been an economic bear about what "California" is, there is no doubt the state is unmanageable and splitting with debt, over burdened with population (and a lack of housing), even saddled with environmental issues (while forest fires are generally not man made irregardless of the cause...they emit carbon). In San Fran there is so much trash in plain sight you have to wonder if city leadership understands basic health and human rights policy.  

“Three states will get us better infrastructure, better education and lower taxes,” Tim Draper, the Silicon Valley venture capitalist who sponsored the ballot measure, said in an email to The Times last summer when he formally submitted the proposal. “States will be more accountable to us and can cooperate and compete for citizens.” - LA TIMES

Many parts of Southern California should never have been settled. The water crisis alone is reason enough to support splitting the state into various chunks. It would be landmark if the state split but the movement is spreading and taking on different forms. 

And in the far north region of California, some residents have pushed to form a new state with parts of southern Oregon, and wouldn’t be keen on being lumped together with liberal San Francisco as envisioned by Draper’s map. - Bloomberg 

Economically speaking - off the cuff - San Fran, San Jose, LA and San Diego are classic - textbook - examples of housing bubbles. San Fran is such a fervent display of a housing bubble that people spend their entire career studying and researching the man made housing shortage. It is staggering that such housing shortage can happen in a mega-populated state - even when you break up California the population and economic numbers are among the largest in the US.

October 24, 2017
Initiative 17-0018 (Amdt. #1)

The Attorney General of California has prepared the following title and summary of the chief purpose and points of the proposed measure:

DIVISION OF CALIFORNIA INTO THREE STATES. INITIATIVE STATUTE.

Divides California into three states subject to approval by Congress. Assigns each county to a new state. Upon passage, directs Governor to request that Congress grant approval within twelve months. If Congress approves, directs Legislature to divide California’s assets and liabilities between the new states. Provides that, if Legislature fails to act within twelve months of Congressional approval, debts shall be distributed among new states based on population relative to California population as a whole, and assets within boundaries of each new state shall become the assets of that new state. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: Assuming this measure is approved by voters and the federal government and allowed by the courts, all tax collections and spending by the existing State of California would end. California’s existing state assets and liabilities would be divided among three new states. These states would make their own decisions about state and local taxes and spending. (17-0018.)

Map / Image Source: LA Times

Mounting geopolitical risks threaten MENA’s nascent economic recovery

The Middle East and North Africa’s (MENA) regional economy is gradually recovering from last year’s downturn. Oil-exporting economies are benefiting from the rise in oil prices, allowing some governments to boost spending and taking some pressure off financial markets. While higher oil prices are bad news for oil-importing economies, robust global economic dynamics are buttressing export growth, partially offsetting the deterioration of the current account. According to an estimate prepared by FocusEconomics, the MENA economy grew an aggregated 2.8% year-on-year in the January–March period (previously reported: +2.7% year-on-year), which would represent a noticeable improvement over the 1.0% rise in the October–December period of 2017.

Political developments have taken center stage in recent weeks, however, threatening to derail the region’s economic recovery. On 8 May, U.S. President Donald Trump decided to withdraw the U.S. from the Iran nuclear deal and reinstate economic sanctions against the country. While the memorandum signed by President Trump gives 180 days to re-impose all the sanctions, the U.S. administration wants some of the sanctions to come into force on 6 August. Iran has not yet abandoned the nuclear deal and is in talks with the remaining members of the Joint Comprehensive Plan of Action—China, the European Union and Russia—to reach a new accord. The European Union has already signed multi- billion U.S. dollar contracts with the Persian country, and if the U.S. administration goes ahead with its plan to punish all firms operating with Iran regardless of their nationality, it will likely worsen further the relationship between the U.S. and the EU. The consequences of the Trump administration’s decision could quickly spill over across the region. Iran has a vast network of allies in the Middle East, particularly Iraq, Lebanon, Syria and some Gulf Cooperation Council countries, that it could use to destabilize the region. Moreover, some countries such as Qatar and the UAE have strong economic ties with Iran and could be negatively affected by the secondary sanctions against firms operating with Iran. Oil prices have soared in recent months in the wake of increasing tensions between Iran and the U.S. and plummeting production in Venezuela, with prices hitting a level last seen in November 2014.

4 June 2018 that OPEC members and Russia were ready to increase output to rebalance the oil market. In the political arena, Lebanon is struggling to form a coalition government after Iran-backed Hezbollah and its allies won the 6 May general election. In Iraq, the 12 May general election was plagued with irregularities; on May 30, the electoral commission annulled votes cast at more than 1,000 of the country’s polling stations. While a repetition of the election is highly unlikely, disputes over the results will add additional strain to the negotiations to form a new coalition government and could generate social instability. In Jordan, Hani Al-Mulki resigned as prime minister on 4 June amid protests against the government over its ongoing economic reforms, including price hikes and a controversial income tax reform. Omar Razzaz, the former education minister, was put in charge by the king of forming a new cabinet. OUTLOOK | Geopolitical risks take their toll on MENA’s 2018 economic outlook The MENA region’s economy is experiencing a recovery this year largely due to higher oil prices, healthy global growth, relatively loose financial conditions and bolder fiscal support in key countries such as Qatar, Saudi Arabia and the UAE. Political risks, however, are gradually materializing, endangering the long-awaited economic rebound. The spat between Iran and the U.S. and its regional allies represents the main regional threat to the region’s economic outlook. The impact of the U.S. decision to abandon the Iran nuclear deal will be felt not only in the Persian country but also in other countries in the region such as Iraq and Lebanon. Moreover, social tensions are resurfacing in Egypt, Jordan and Morocco, while the long-standing conflict between Israel and Palestinians has flared up again in recent weeks. Elsewhere in the MENA region, the establishment of secure governments in Iraq and Lebanon is key to cementing political stability. The MENA regional economy is expected to expand 2.7% in 2018, which is down 0.1 percentage points from last month’s estimate. Our panel projects growth of 3.1% next year. This month’s downgrade for the 2018 economic outlook reflects lower growth prospects for Iran, Iraq, Kuwait, Lebanon and Qatar. Projections were left stable in Bahrain, Israel, Jordan, Morocco, Oman, Saudi Arabia, Tunisia, the UAE and Yemen. This month, Algeria and Egypt were the sole economies to receive upgrades for their 2018 GDP outlooks. Egypt’s economy is expected to be the top performer in 2018, followed by Israel’s. At the other end of the spectrum, Yemen, which is entangled in a bloody civil war, is expected to contract for the fifth consecutive year. Among other major economies, Saudi Arabia’s economy is expected to return to growth this year, but the expansion will be limited by reduced oil output in compliance with the global oil cut deal. Israel should continue to expand at a fast pace on strong private consumption and fixed investment growth.

SAUDI ARABIA | Non-oil economic activity falters in April The recent rise in oil prices, which are currently trading at levels last seen over three years ago, is allowing Saudi authorities to increase spending, particularly to fund social benefits and military outlays. Moreover, higher oil prices are boosting international reserves, which hit an over one-year high in April. That said, the gain will be partially offset by the reduction in oil output as countries participating in the OPEC oil deal continue to deliver high conformity levels (April: 152%). While the oil sector appears to be recovering, the non-hydrocarbon economy is slowing markedly this year. The implementation of the value added tax in January likely disrupted economic activity in Q1, while delayed payments to businesses are causing financial strain in some companies, particularly in the construction sector. The crackdown on corruption that affected princes, cabinet officials and businessmen in November 2017 and the Saudization policy have also contributed to diminishing economic sentiment. While the economy is expected to emerge from recession this year, the rebound will be rather limited. Saudi Arabia’s strong compliance with the oil cap deal is preventing the economy from fully benefitting from the recent spike in oil prices. Moreover, the country remains entangled in a never-ending war in Yemen, while regional geopolitical risks continue to rise. FocusEconomics Consensus Forecast panelists expect economic growth of 1.5% in 2018, which is unchanged from last month’s projection. In 2019, growth is seen picking up pace to 2.3%.

UAE | Economy gains steam in April as VAT impact fades The economy gained steam in the first quarter, largely thanks to higher oil price that buoyed the hydrocarbon sector, despite constrained output from the OPEC agreement. This welcome boost more than offset a slight slowdown in the non-oil economy, which had to adjust to the implementation of VAT in January. Looking at Q2, the VAT-induced slowdown is likely to subside, with PMI data showing an improvement in April, while oil prices dynamics still look positive following the U.S. exit from the Iran nuclear deal. Furthermore, on 20 May, the government approved a new 10-year visa to attract investors and skilled professionals, as part of its comprehensive strategy to modernize and diversify the economy away from oil. This should reinvigorate the residential housing market, which has been tumbling in past years. Investment should be the main driving force in the non-oil economy this year. A large infrastructure push from the government, particularly in Dubai in the run-up to the Expo 2020, should carry private investment momentum. In addition, a flurry of new measures including 10-year visas and a reform—to be introduced in Q4—authorizing 100% foreign ownership in some sectors are expected to boost FDI inflows further. Meanwhile, higher tourist inflows will likely buttress private consumption growth. An escalation of regional tensions could, however, put a lid on this positive momentum. FocusEconomics panelists expect GDP to increase 2.7% in 2018, which is unchanged from last month’s forecast, and 3.2% in 2019.

EGYPT | Economy set to complete a strong FY 2018 as reforms kick in With FY 2018 ending in June, the economy remains in good shape. Annual economic growth accelerated in the January-to- March period to reach a multi-year high. More recently, in May, foreign reserves hit a record monthly high and, in April, business conditions in the non-oil private sector were in positive territory for only the second time in over two years. Moreover, the gas industry got a boost on 10 May when a third production unit came online at the Zohr gas field. As part of its efforts to raise revenue and invigorate the stock market, the government announced on 28 May that it was floating some of a state-owned tobacco company on the Egyptian Exchange. Amid this positive backdrop, however, authorities have launched a crackdown on dissent following protests in May over higher metro fees. This apparent social tension underlines the careful balancing act facing the President Abdel Fattah el-Sisi: Continuing with IMF-backed structural reforms to the economy while minimizing the burden on Egyptians that are already financially-squeezed. In FY 2019, the economy should maintain its strength. Investment is likely to prove supportive, boosted by an improved regulatory environment—thanks in large part to several recent measures, such as new investment, bankruptcy and industrial licensing laws. In addition, the external sector will continue to benefit from the weaker pound. However, the high debt burden and sizeable budget deficit will continue to pose downside risks. FocusEconomics analysts expect GDP to expand 5.0% in FY 2019, which is unchanged from last month’s forecast, and 5.0% again in FY 2020.

ISRAEL | Growth remains robust in Q2 Despite a slight quarter-on-quarter moderation, economic activity remained robust in the first quarter chiefly on the back of strong private consumption and fixed investment. The external sector, however, dragged on economic growth in Q1; import growth was more than three times higher than export growth. Available data for Q2 suggests that momentum will remain robust. Economic activity picked up pace in April, while business sentiment and the manufacturing PMI remained elevated despite easing somewhat. The PMI remained in expansionary territory for the fifth consecutive month in April on the back of domestic demand. In addition, export data for February–April continued to point towards strong overseas demand for high-tech goods. The economy should be supported by fixed investment and private consumption this year. New projects such as the Leviathan gas field and ultra-loose monetary policy should buttress fixed investment, while household consumption will likely benefit from lower taxes. However, risks remain present in regional tensions that could dampen inbound tourism and investor sentiment, and drag on export growth. Moreover, the near full-employment level could create skill shortages, limiting output growth. FocusEconomics panelists forecast the economy to expand 3.4% in 2018, unchanged from last month’s forecast, and 3.3% in 2019.

INFLATION | Inflation stabilizes at low levels in April Price pressures in the Middle East and North Africa region remained subdued in April, with regional inflation stabilizing at March’s 3.7%, according to an aggregate produced by FocusEconomics. April’s result reflected lower inflation in Saudi Arabia as the impact of the VAT introduction in January fades, coupled with the ongoing deflationary process in Egypt. Despite the weakening of the Iranian rial following expectations of possible new economic sanctions by the U.S., inflation declined in April due to lower prices for food. This year, inflation will pick up on the back of faster economic growth in the region, the implementation of a VAT in some GCC countries and higher energy prices. FocusEconomics panelists forecast that regional inflation will average 5.1% in 2018, which is up 0.1 percentage points from last month’s estimate. In 2019, inflation is expected to moderate to 4.7%.

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From Mizuho: In the Japan-US summit meeting on April 17-18, issues on North Korea and trade were the main topics. Concerning the trade issue, the two leaders agreed to undertake new trade talks. 

US President Trump addressed the issue of America’s “massive trade deficit with Japan” and showed his determination to slash the deficit, but he did not come up with any specific demands to Japan. He also made no reference to the currency issue, another area of concern. 

While Japan’s Prime Minister Abe expressed his position that “the Trans-Pacific Partnership (TPP) is the best for the US and Japan,” President Trump rejected the idea of returning to the TPP without renegotiating the conditions and emphasized his preference for bilateral talks. The new trade negotiations with the US are expected to be challenging for Japan.

The Japan-US FTA and the US return to the TPP The possibility of initiating the Japan-US FTA talks has been rumored since the outset of the Trump administration. Speculation that the US would officially request Japan to start FTA talks emerged right before the summit meeting. One factor behind this speculation was the statement made by US Trade Representative Lighthizer at the Committee on Ways and Means in the House of Representative, where he said, “We have told Japan that we are interested in having a free trade agreement with them at the appropriate time.”15 Also, since the countries exempted from the US import restrictions on steel and aluminum products, effective from March 23, were either countries with a trade surplus with the US or countries currently negotiating FTAs, it strengthened the belief that the United States would ask Japan to start FTA negotiations in exchange for 11 The Nikkei, “Pressure grows on Japan again. President Trump says, ‘I won’t be cheated again,’” March 24, 2018. 12 USTR, 2018 Trade Policy Agenda and 2017 Annual Report of the President of the United States on the Trade Agreements Program, March 2018. 13 The Nikkei, “President Trump urges purchase of US defense equipment,” November 7, 2017. 14 U.S. Department of the Treasury, Office of International Affairs, Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, April 2018. 15 USTR, “Opening Statement of USTR Robert Lighthizer to the House Ways and Means Committee,” March 21, 2018. 6 exempting Japan from the additional import tariffs. 16 Furthermore, since the FTA renegotiations between the US and South Korea were concluded in favor of the US side, there were increasing concerns within Japan that Japan would be the next target.17 Meanwhile, concerning the possibility of the United States returning to the TPP, there has been no specific development after President Trump’s reference to the TPP at the World Economic Forum’s Annual Meeting (Davos conference) in January this year. But discussions on the TPP came under the spotlight again, triggered by President Trump, who instructed Robert Lighthizer, the US Trade Representative and Larry Kudlow, the director of the National Economic Council to examine the conditions for returning to the TPP, when he met with Republican senators on April 12. Nonetheless, President Trump has not changed the conditions of the United States returning to the TPP, as the US may return to the TPP “only if the TPP becomes a substantially better deal.” On the night of April 17, when the first day of the Japan-US summit meeting was coming to an end, President Trump tweeted, “While Japan and South Korea would like us to go back into the TPP, I don't like the deal for the United States. … Bilateral deals are far more efficient, profitable and better for OUR workers.”18 This suggested that the situation was far from hopeful that the US would return to the TPP talks. For Japan, which wanted to avoid Japan-US FTA talks but could not respond positively to renegotiating the TPP,19 it was believed that when asked by the United States to start the FTA negotiations, the best solution would be to conduct discussions within the Japan-US Economic Dialogue initiated with trade and investment as one of its main pillars. But as the two countries had already held the dialogue twice, and the US had begun to view Japan as using the dialogue to buy time, it was thought this option would be difficult for the two countries to take before the summit meeting. Under these circumstances, Japan prepared a new alternative to establish a new framework for dialogue. 20 During the summit meeting, the two leaders agreed to start “talks for free, fair, and reciprocal trade deals” between Japan’s Minister of State for Economic and Fiscal Policy 16 The Mainichi Shimbun, “US to exercise import barrier on steel; EU and South Korea exempted but not Japan,” March 23, 2018. In the Committee on Financial Affairs of the House of Councillors held on March 29, government witness Tsutomu Koizumi, Deputy Director-General / Deputy Assistant Minister of the Economic Affairs Bureau in the Ministry of Foreign Affairs, stated that “we should prudently take note of the fact that the US is using the exemption of certain countries from the import restrictions as a tool to proceed with trade talks with each country.” Following this statement, Finance Minister Taro Aso stated that “the most important thing is to avoid the situation where Japan will be drawn into bilateral negotiations in exchange for an exemption from import restrictions. … We will firmly reject this situation.” (The House of Councillors “the 196th Diet, record taken at the Committee on Financial Affairs, March 29, 2018, no. 8.”) 17 The Mainichi Shimbun, “The US-South Korea FTA – Japan feels threatened from pressure,” March 27, 2018. 18 Tweets by President Trump (@realDonaldTrump), April 18, 2018 11:49 (Japan time). It should be noted that although South Korea has not signed the TPP and CPTPP, it seems to be positive on joining them. 19 On this issue, refer to Junichi Sugawara, “Conclusion of TPP11 and its outlook,” Mizuho Insight, Mizuho Research Institute, February 15, 2018. 20 The Nikkei, “US and Japan to start new trade talks, the government will make a proposal at the summit meeting,” April 14, 2018. 7 and Minister in charge of Economic Revitalization Toshimitsu Motegi, who heads the TPP negotiations, and US Trade Representative Robert Lighthizer, who is responsible for trade negotiations. It was decided that details of the talks would be reported in the Japan-US Economic Dialogue.21 Japan made it clear that the new trade talks would not be a preliminary deliberation to a Japan-US FTA, and Prime Minister Abe expressed to President Trump that he has no intention to conclude a Japan-US FTA.22 But since President Trump has declared that a bilateral deal would be preferable, we cannot deny the possibility that the United States will try to persuade Japan to turn the new trade talks into Japan-US FTA negotiations.

From Zermatt Research:
While the outlook moderates, the economy lost steam in Q1. Analysts see a gradual recovery this year and next, with inflation staying near 2% from raw material and rising labor costs.

Employment
According to the Labour Force Survey and Mizuho Research, the number of employed persons in Japan FY2017 reached an all time high - or a historical high - of 65.57M. There has been a dramatic increase in female employment as well. Well, for starts Japan realized that last year (FY2017) the country reached a historical employment high — and that included record amounts of women entering the work force. The shift in numbers of females from part-time to full-time / regular employment in the welfare, medical and healthcare sectors will increase the average wage per worker too.

PMI in Japan, as well as Hong Kong, came in lower.

This article will be periodically updated - CH


Europe's major economies are slowing down.

In Germany the economy is loosing steam and this is apparent in Q1 numbers. Indicators are showing that - according to data and reporting from Focus Economics, key G7 indicators are pointing to a slowdown.

France: Preliminary measurements point to a slowdown in private consumption and a deceleration in investing but their outlook remains stable. A roster of events support this outlook including low unemployment, a strong euro and fiscal monetary conditions. Meanwhile in the real sector, business sentiment dropped (INSEE Index).

Over the weekend Italy president said no to appointing a Euro-skeptic FinMin. I reckoned this a positive, but the narrative has shifted..."this emboldens the two populist parties" to perhaps form a new populist front before the next elections.

While Italy remains in certain shambles and the political system upside down, a subsequent government has been formed but there is no true relief. Economic data is showing slow numbers from the first quarter and the risk of another political disaster still looms over Italy. In essence the political situation is completely unsettled

While Italy remains without a new government, it would be foolish to believe that a country where anti-system parties won 55% of the popular vote will continue to behave as if nothing had happened. But political upheavals sometime provide a unique opportunity for addressing seemingly intractable problems. - JEAN PISANI-FERRY

On one end, Spain is inching to normalcy, or what can be called normalcy. The minority government finally seems to have enough votes to see a bill through...that was last week. Spain is now back in decent. Mounting fears about political instability in Italy and Spain sent tremors through the eurozone’s two largest peripheral debt markets on Friday with investors dumping the sovereign bonds of both countries and sending European bank shares sharply lower. FT Link 

June 6th: IHS Market: Eurozone’s outlook has darkened dramatically. Italy’s turbulent political environment took its toll on businesses last month, as worries over the underlying trend in activity growth bubbled up despite a pick-up in growth in the country’s services sector that bucked a slowdown in Germany and France. The purchasing managers’ index of activity in Italy’s services sector picked up to 53.1 in May, from 52.6 in April. That compared to a fall from 57.4 to 54.3 in France and from 53 to 52.1 in Germany — a 20-month low.

June 4th: (FT) "The best argument for Italy to remain in the euro is to hope that the eurozone will eventually be reformed. If we know for certain that is not going to happen, the argument shifts."

June 1: Prime Minister Mariano Rajoy of Spain lost a no-confidence vote over a corruption scandal, turning up the political uncertainty in Southern Europe. He will be replaced by Pedro Sanchez.

May 30, 2018: From FocusEconomics: Outlook stable. The Eurozone economy lost steam in the first quarter of 2018, starting the year off on a subdued note following a stellar 2017. Growth slid to the lowest rate since Q3 2016, likely weighed down by a strong euro and weaker sentiment as well as several one-off factors such as the early timing of Easter. Available data for the second quarter suggests that growth remained at a slower cruising speed: Economic sentiment rested at March’s six-month low in April, and the composite PMI fell to an 18-month low in May. In the political arena, recent developments have also not been so sunny. In Italy, anti-establishment parties, the League and the Five Star Movement, abandoned plans to form a government on 27 May, after the Italian president blocked the nomination of a Eurosceptic finance minister, increasing the chance of early elections. Political uncertainty has also risen rapidly in Spain, and the government will reportedly face a no confidence vote in the coming days on the heels of a large corruption scandal.  FocusEconomics panelists held their view of the Eurozone economy unchanged this month and see GDP growing 2.3% in 2018. A solid labor market and robust investment should support healthy, albeit slower, growth this year. Political risks, however, continue to cloud the economy’s outlook, while slowing exports will take some wind out of the recovery. In 2019, the economy is seen expanding 1.9%. Harmonized inflation eased from 1.3% in March to 1.2% in April. Despite an ultra-accommodative stance by the ECB, price pressures remain soft and well below the Bank’s target of close to 2.0%. Our panel sees inflation averaging 1.5% in 2018, unchanged from last month’s forecast, and 1.6% in 2019. At its latest monetary policy meeting on 26 April, the ECB left its ultraaccommodative stance unchanged in the face of subdued price pressures, holding the refinancing rate at 0.00%. The next meeting is set for 14 June. All of the analysts surveyed by FocusEconomics expect the ECB to keep the refinancing rate unchanged this year amid low inflation. The Consensus Forecast is that the rate will end 2018 at 0.00% and 2019 at 0.30%. The euro lost ground against the U.S. dollar in May, falling to the lowest values seen so far in 2018. On 25 May, the euro bought 1.17 USD, a weakening of 4.3% from the same day last month. Downbeat economic data, political uncertainty and rising interest rates in the U.S. have all weighed on the euro’s value. Our panel sees the currency ending 2018 at 1.24 USD per EUR and 2019 at 1.28 USD per EUR.

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The info below is really helpful if you think about assets and pricing (which is something I think about a lot). Bitcoin inevitably could be graded based on transaction history. As soon as the US Fed adapts a "Fedcoin" system and we have the main sovereign coin with pure bitcoin coins, this could be worthwhile. The closer to the mining operation - or limited transaction history - would result in a coin that trades at a premium, assuming there was a system. After-all a clean BTC could mean it was never tainted, it was never a vehicle for black market payments. Grade A level to Grade D, or what have you. From this I see sorts of additions to the system, perhaps coupon redemption and distressed debt administration. - CH

From Davis Polk: A possible future for bitcoin is one in which the old banknote lists return in 21st-century form—bitcoin from a particular address would be graded based on its transaction history and relative distance from flagged transactions or blacklisted addresses. For example, as generally described by JP Koning, Grade A bitcoin would be “fresh” bitcoin, purchased directly from a miner and would trade at a premium. Grade D bitcoin, meanwhile, may have passed through a blacklisted address and trade at a significant discount. In between are bitcoin that are not closely associated with a blacklisted address or that have been “cleaned” by passing through a bitcoin mixing service that makes tracing more difficult. Such grading schemes could easily become enormously complex given that bitcoin easily moves across borders, and various jurisdictions could have overlapping or inconsistent blacklists, tort laws, AML/KYC requirements, and laws particular to digital assets. This type of regime could lead to a market where any large bitcoin transaction would require a bespoke appraisal. Further, because bitcoin do not go out of circulation, bitcoin will “age,” becoming less valuable over time as each transaction makes it more likely that it will pass through a tainted address. All told, fungibility issues could easily become a substantial limiting factor on bitcoin’s usefulness as a currency.

Thank you:

 Davis Polk + Matt Levine @ Bloomberg

From Focus Economics:

Comprehensive GDP data revealed that the recovery lost steam in the fourth quarter of last year, with growth weighed on by inventories as well as slowing fixed investment. Recent indicators, however, suggest that activity likely bounced back in the first quarter of 2018 and that overall the recovery remains on track if lackluster. Consumer confidence improved in Q1 and the unemployment rate inched down in February, boding well for household spending in the quarter. Positive signs emerged from the external sector as well with exports growth hitting a 10-month high in January and the Ural oil price jumping in March, which should support export revenues. On the political front, as widely expected, President Vladimir Putin won the 18 March election, securing over 75% of the votes. More recently, on 6 April, the United States unveiled new sanctions against several high-profile Russian businessmen and their affiliated companies. The measures freeze their U.S. assets and ban Americans from conducting business with them. The sanctions caused turmoil in Russian financial markets, with the main stock index diving and the ruble depreciating over 4.0% on 9 April.

Rising oil prices, a healthy labor market and improved consumer confidence should cause growth to gather steam this year. However, limited oil output and structural rigidities will hamper activity, while the impact of the fresh sanctions is still uncertain. Focus Economics Consensus Forecast panelists see GDP expanding 1.8% in 2018, which is unchanged from last month’s forecast. In 2019, growth is seen stable at 1.8%.

source: tradingeconomics.com 

The consumer confidence indicator published by the Federal Statistics Service (Rosstat) improved in Q1 2018, rising to the highest reading since Q3 2014. The consumer confidence indicator rose from Q4 2017’s minus 11 points to minus 8 points. Despite the rise, the index remains firmly entrenched below the 0-threshold, which indicates that pessimists outnumber optimists. According to the survey, the improvement was broad-based across the components of the index. Households were more optimistic about the future economic situation in Russia and assessed the current situation less negatively than in the previous quarter. In addition, households’ assessments of their current and future personal financial situation improved in Q1. FocusEconomics Consensus Forecast panelists expect private consumption to expand 3.3% in 2018, which is up 0.3 percentage points from last month’s projection. For 2019, panelists expect private consumption to increase 2.6%

MONEY
Central Bank cuts key interest rate to 7.25% in March At its 23 March meeting, the Board of Directors of the Central Bank of the Russian Federation (CBR) decided to cut the key interest rate by 25 basis points to 7.25%, a move widely expected by market analysts. The decision followed a same-sized cut in February and marks the lowest policy rate since April 2014. Low inflationary pressures have given the Bank space to pursue an easing cycle as it aims to transition to neutral monetary policy. In its accompanying statement, the CBR commented that inflationary expectations are continuing to fall, and that price pressures remain low; they are, however, low partly due to a favorable base effect. The Bank expects inflation to return to its target of 4.0% in the second half of 2018 as this base effect from high food prices last year fades. Notably, it made no changes to its growth projections for the Russian economy this month despite higher oil prices, citing ongoing structural issues and lower sensitivity to oil price fluctuations as the reasons for the unchanged prospects. Looking forward, the Bank signaled that more cuts are in the pipeline, as it stated that it plans to complete the transition to neutral monetary policy by the end of the year. A key interest rate of between 6–7% is considered as roughly neutral. The Bank, however, highlighted one new upside risk to its inflation outlook: A tight labor market could put upward pressure on prices through higher wages. The next monetary policy meeting is scheduled for 27 April 2018. FocusEconomics panelists see the key interest rate ending 2018 at 6.56%. In 2019, panelists see the Central Bank lowering the monetary policy rate further, with a Consensus Forecast of 6.15%. 

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Data from: Focus Economics, Zermatt Research, Rosstat, Trading Economics 

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A string of weaker economic data suggests that the Eurozone economy decelerated at the start of 2018, following a robust spell of growth last year. While GDP data for the first quarter is still outstanding, monthly indicators have been soft, with economic sentiment falling throughout the quarter, and industrial production dropping in January and February. That said, the tailwinds of last year’s solid growth remain largely in place, and the slowdown is likely to be moderate thanks to a tightening labor market and ultra-accommodative monetary policy. FocusEconomics analysts expect GDP to have expanded a seasonally-adjusted 0.5% over the previous quarter in Q1, down from Q4’s 0.7% expansion. Preliminary GDP data released by national statistical institutes revealed that growth waned in Austria, Belgium and France. In France, a weak performance by the external sector and a sharp slowdown in corporate investment dented momentum in the quarter. While subdued domestic activity likely sparked the slowdown in Belgium, the details behind the release are still outstanding. Although Austria’s economy decelerated somewhat, growth was still strong by historical standards, bolstered by both domestic demand and the external sector. Meanwhile, Spain expanded at a solid rate, clocking a third consecutive quarter of steady growth. First-quarter GDP data for the remaining economies is still outstanding. The political landscape in the common currency bloc remains uncertain and convoluted, casting a shadow on its future. Italy is in a state of political deadlock after the March election yielded a fragmented congress, and it remains to be seen when or if a government will be formed. Moreover, it seems unlikely that a new government will have the political willpower or ability to push tough economic reforms, which could limit the economy to growing at a subdued rate. In Slovenia, early elections were called for 3 June on 14 April, following Prime Minister Miro Cerar’s resignation. Early polls place the center-left List of Marjan Sarec (LMS) in the lead; this is the first time LMS is running in a national vote. However, uncertainty is high, and the race is close, making it difficult to call. Meanwhile, Greece presented its post-bailout vision to Eurozone members on 27 April as it enters the final stretch of its third bailout program. The program is set to expire in August, and the country is eager to acquire debt relief and take control over its economic policy; Regional outlook moderates

3 May 2018 however, there are fears among Euro officials that Greece could backslide on reforms or fiscal consolidation once the bailout ends. Negotiations over an exit package are expected to continue in the coming weeks.

The Eurozone economy appears to have hit a speed bump in the first quarter, with monthly indicators pointing to a deceleration in activity after a robust spell of growth in 2017. Industrial production plummeted in February, and economic sentiment dropped in March. In addition, the composite PMI fell to an over one-year low in March and hovered there in April, suggesting that the soft patch may have leaked over into Q2. On the political front, wrangling over the 2021–2027 EU budget is set to begin, and the European Commission will present its draft proposal on 2 May. The budget will likely contain some cuts to spending programs and larger national contributions, in part due to the UK’s exit from the bloc, which is set for March 2019. Soft incoming data led FocusEconomics panelists to downgrade their view of the Eurozone economy this month, following six consecutive upgrades. Growth is seen remaining healthy in 2018, supported by an improving labor market, accommodative monetary policy and firm investment. That said, an uncertain political scene and global trade tensions could dent confidence, while exports are expected to lose steam due to a strong euro. The panel now sees the Eurozone economy growing 2.3% this year, down 0.1 percentage points from last month’s forecast. In 2019, GDP is forecast to grow 2.0%. Harmonized inflation rose to 1.3% in March (February: 1.1%). Inflation has failed to pick up substantially despite an ultra-accommodative stance by the ECB. On 26 April, the Bank made no changes to its monetary policy. Our panel sees inflation averaging 1.5% in 2018 and 1.6% in 2019.

From Focus Economics

Many believe the trade war talk to be just that, talk. There is little if any damage being done. While I agree that it is more likely a trade war will not happen, I falter at the anti-free market lunacy of the current POTUS. Can you not handle trade negotions with negotiations? We are not building a condomimim complex. POTUS is  putting economics in the hands of political economists, or whatever you’d like to call them...Men who use the science and art of economics to propel partisan rhetoric. What a crime! I will say that when politics die, they are generally destroyed. When these days vanish we will be in a much better place. There is no room for polite society inside   state run propaganda and US media. 

Fathom Consulting: Our US Economic Sentiment Indicator (ESI) may have slipped from 6.8% to 6.3% in March, but this was still one of the highest readings in 21 years. This comes in spite of growing fears of a trade war between the US and China, which many suggested would dampen sentiment and economic activity. Some of these fears may yet be reflected in the ESI reading for April, since some survey responses for March will have been submitted before China-specific tariffs were announced on 22 March.  However, fears of a trade war first surfaced in February, when the US announced tariffs on steel and aluminium imports, and there is no sign that this had a material negative effect on business and consumer sentiment last month. Even if a trade war is avoided, as we anticipate, we do not expect such bullish business and consumer sentiment to be maintained indefinitely — hard and soft measures of economic activity are likely to converge later this year.  Given the Q1 data released so far, official GDP growth looks likely to have been 1.5-2.0% (annualized). We have therefore revised down our forecast from 2.6% to 1.7%. However, GDP growth in Q1 has been systematically lower than growth in other quarters since 2000 and we do not think that this marks a slowdown in underlying economic activity; we expect growth to bounce back in Q2.

- Thank you Fathom Consulting 

U.S. President Donald Trump’s decision to impose tariffs on aluminium and steel imports on 1 March heavily dragged on the prices of some base and some precious metals in March, eroding investor confidence globally. Trump declared a temporary exemption for some economies, including Canada and the European Union, but left the levies for China in place, making it clear that China was the focus of his actions. This negative climate was amplified later in the month by Trump’s announcement of tariffs on USD 50 billion of Chinese imports in response for what he called China’s unfair trade practices, which have led to massive trade surpluses in favor of the Asian nation. China retaliated by announcing a reciprocal tariff package on U.S. imports including soybeans, planes and automobiles. Against this backdrop, commodity prices fell an aggregated 1.9% month-on-month in March (February: +0.8% month-on- month), the sharpest drop in one year. Base metals, along with palladium and platinum, were the main drivers behind March’s poor performance. Energy prices rose in March, however, due to strong fundamentals. Similarly, healthy global demand and fears of limited supply continued to boost prices for agricultural commodities. Global commodity prices are expected to withstand ongoing political uncertainties this year and next. Chinese officials adopted a more conciliatory tone in recent days, signaling a potential end to the ongoing trade war with the U.S. Moreover, data for Q1 confirms that the global economy remains in good shape, shoring up demand for commodities. Nevertheless, Trump’s aggressive stance toward China remains firmly in place, and he has threatened the country with additional tariffs of up to USD 150 billion. While China has offered to open some economic sectors, it has also stated that the country will retaliate against any punitive measure. If these threats materialize, the global economy will face an all-out trade war between the two countries, which would certainly disrupt global growth and commodity markets.

From Focus-Economics

ENERGY | Strong fundamentals prompt prices to recover In March, energy prices recovered some of the ground lost in the previous month, when oil prices tumbled in the wake of the massive sell-off in U.S. equity markets. 3 April 2018 oil markets were oversupplied. Energy prices rose 1.4% month- on-month in March (February: -4.2% mom). The all-important Brent and WTI oil prices climbed in March amid the strong compliance level to the oil-cap deal by Russia and OPEC members, along with signs of strong global growth and rising geopolitical tensions in the Middle East. Gasoline prices surged in March, reflecting higher oil prices and strong demand. In turn, natural gas prices benefited from China’s environmental push, posting solid gains in March. Conversely, China’s decision to allow higher coal production put downward pressure on thermal coal prices. Strong global growth will continue to spur energy prices this year. That said, the rise will be limited by increasing production of shale oil and natural gas prices in the U.S. Moreover, stricter environmental regulation in China and a broader preference for cleaner energy globally will dampen demand for coal. Analysts surveyed by FocusEconomics expect energy commodity prices to rise 8.1% year-on-year in Q4 2018 before logging a mild decline of 0.5% in Q4 2019.

BASE METALS | China-U.S. trade tensions lead prices to decline Prices for base metals logged their worst performance in over two years in March amid fears that the ongoing trade war between China and the United States could derail the current stellar global economic growth. Base metals declined 3.4% month-on-month, contrasting February’s mild 0.9% increase. Prices for base metals struggled in March on the back of concerns about the impact on global economic growth of the trade rift between China and the U.S. Iron ore, a key input for steel, was particularly hit by Trump’s announcement to impose tariffs on steel and aluminium imports on 1 March. Aluminium prices were also sharply down as reduced U.S. imports for the metal are expected to increase global oversupply and lower non-U.S. prices. Almost all the remaining base metal prices tracked by FocusEconomics were down in March, reflecting a potential slowdown in China due to the trade dispute with the U.S. Half of most metals that are used in industrial processes are consumed by China. On the flip side, U.S. steel prices soared in March; reduced global imports for the metal will tighten the domestic steel market. Analysts polled by FocusEconomics still see increasing base metal prices in 2018 and 2019 amid signs that China and the United States are willing to negotiate to end trade disputes. Analysts foresee base metal prices rising 2.0% in Q4 2018 from the same quarter in 2017. Base metal prices should lose some steam in 2019, with a year-on-year expansion of 1.9% penciled in for Q4 2019.


PRECIOUS METALS | Geopolitical risks and Fed’s tightening cycle send prices down Prices for precious metals declined for the second consecutive month in March, with all commodities in the group recording lower Change in Base Metals Forecasts. Precious metal prices fell 0.8% on a month-on-month basis in March (February: -0.3% mom). Palladium and platinum prices were the worst performers in the category. Fears that the trade rift between China and the U.S. could hurt economic growth and reduce global demand for cars weighed on prices for the two commodities. Gold prices were negatively affected by the ongoing monetary tightening in the United States and expensive equity valuations. That said, ongoing trade disputes between China and the U.S., a conflict escalation in Syria and rising tension between Russia and Western nations are all expected to fuel demand for the safe-haven asset. Silver prices largely followed gold’s performance and declined slightly in March. Strong global economic activity and limited supply growth should spur industrial demand for palladium, platinum and silver this year and next, supporting prices for the three commodities. Moreover, heightened geopolitical tensions bode well for gold and, to a lesser extent, silver prices. An expected uptick in purchases of jewelry and bullion, especially in China, will add further upward pressure on precious metal prices. Analysts polled for this month’s survey see precious metal prices for Q4 2018 rising 3.3% from the same quarter in 2017. The panel sees a mild deceleration next year, with precious metal prices increasing 3.2% year-on-year in Q4 2019.

AGRICULTURAL | Prices continue to rise on strong demand and shortage fears The upward trend in agricultural prices continued in March on weather supply concerns and resilient demand for industrial usages, food supplies and animal feed. That said, the rally is expected to moderate going forward due to improved weather conditions in key producing areas such as Western Africa and parts of the United States. Moreover, investors will likely take advantage of the recent surge in some agriculture prices. Agriculture prices grew 3.9% on a month-on-month basis in March (February: +5.1% mom). Five out of the nine agriculture commodities tracked by FocusEconomics saw price increases in March, with cocoa recording the largest increase, followed by cotton. Conversely, prices for coffee and wool declined in the month. Sugar prices continued to decline in March amid oversupply. Supply shortages and healthy demand for agriculture products will continue to exert upward pressure further down the road. Our panel of analysts forecasts a 16.5% annual increase in Q4 2018. Agriculture prices are seen expanding a solid 4.5% year-on-year in Q4 2019.

Apart from the Amazon of 1999-2010 - let's refer to those as the innocent years of Amazon -  Amazon has now grown to be such a behemoth and problem to American commerce that even mainstreet is against the proposed HQ2 - all across America. In an article I published last August I stated: Despite the frenzy and furor over Amazon on both sides - shareholders and antitrust types alike - AMZN could have a rough patch ahead. While growth and market share dominate the culture and drive of $AMZN what is happening in their quest for dominance is destruction. When sales competitor Wal-Mart Stores (NYSE:WMT) is compared to Amazon the difference is intense: WMT has an enterprise value of $271B with revenues at $486B, Amazon is currently at an enterprise value of $478B with revenues of $150B. The joke in the past was Amason sold $1.00 for $.99, now AMZN is creeping towards selling $1.00 for $.50.”  (See article  - Cool Down Time For AMZN)

The joke is there is no more joke about Amazon selling $1.00 for 0.50 or 0.80 cents on the dollar. Now they will just give the product to you. The website and portal giant they operate is a never ending black hole where staffers brainstorm on the next product or vertical they can swallow and convert into digital thumbnails for sale, no matter the price,  or lack of quality control or absurdism behind a third party selling you a $75,000.00 tractor online. 

I use Amazon - I began in 1999 buying books. Now I buy random varieties of goods that I refuse to assemble in the real world thru retail experiences. However, I’m not going to buy my next car on Amazon, I’m not going to buy my next surfboard on Amazon. I’m not going to buy fine art on Amazon. 

From the AJC: Some fear what Amazon might do to their companies, commutes, neighborhoods and even local and state budgets as job-hungry leaders dangle what will likely amount to billions of dollars in tax breaks and other perks for the Seattle-based company (Link).

REAL SECTOR | Trade war threatens to derail stellar global growth momentum A complete GDP dataset revealed that global growth lost some steam in the fourth quarter of 2017, despite remaining robust overall. The global economy expanded 3.4% annually in Q4, which was a notch below both the 3.5% rise estimated last month, and the 3.5% expansion recorded in Q3 2017. The slightly lower figure was the result of weaker-than-expected growth in Latin America, particularly in Brazil. Conversely, newly released GDP data for India came in above market expectations. Data for Q1 signals that the economy continues to sail smoothly, propelled by largely accommodative monetary policies, tight labor markets and robust global trade. Against this backdrop, our analysts expect the global economy to expand 3.5% in Q1 on improved dynamics in both advanced and emerging market economies. Despite the solid economic backdrop, the threat of rising protectionism has dominated headlines in recent weeks. Notably, the United States announced on 22 March its first set of punitive actions against China by proposing tariffs on up to USD 60 billion of imports from the Asian giant. Although China showed readiness to retaliate by announcing tariffs on USD 3.0 billion of goods, the U.S. decision leaves room for negotiation before implementation, an opportunity Beijing is unlikely to ignore in a bid to prevent further escalation. The risk remains that if negotiations fail, U.S. protectionism will spiral out of control and cause an all-out trade war with China, which would harm both economies and throw a wrench in the works of the global economy. The U.S. decision to impose trade restrictions on China came only two weeks after the Trump administration announced tariffs on steel and aluminum products, citing national security grounds under Section 232 of the Trade Expansion Act. That said, many economies were given temporary exemptions before the tariffs came into force on 23 March, including the European Union and NAFTA partners Canada and Mexico. Negotiations over the North American trade agreement are still ongoing, and, although progress is painfully slow, the U.S. recently softened its stance on rules of origin in an unexpected sign of goodwill. All told, while the U.S. has turned more belligerent on the trade front in recent weeks, it has also taken a less aggressive stance in some areas. On a more positive note, eleven countries signed the Comprehensive and Progressive Agreement for Trans-Pacific Global 

Note: GDP, real annual variation in %, Q1 2015 - Q4 2019. 

Note: GDP, evolution of 2018 and 2019 forecasts during the last 18 months. FOCUSECONOMICS Summary FocusEconomics Consensus Forecast |

• 3 April 2018 partnership (CPTPP) on 8 March, a trade liberalization deal that removes most tariffs for a bloc representing nearly 500 million people and more than 13% of global trade. The bloc—from which the United States withdrew last year—should stir trade flows across the Pacific and fuel stronger economic growth in all the countries involved. The CPTPP is expected to go into effect two months after most of the participants have domestically ratified the agreement. In the European Union, a whirlwind of political news has kept analysts on their toes. On 4 March, parliamentary elections in Italy yielded a hung parliament, with anti-establishment parties gaining over half of the seats and traditional parties being relegated to a state of political limbo. Despite signs of rapprochement between the North League and the 5-Star Movement, the country is unlikely to find a way out any time soon, heralding a period of political uncertainty ahead. Conversely, Germany put an end to over five months of political gridlock following the formation of the second consecutive alliance between the Social Democrats and Angela Merkel’s Christian Democratic Union. Ongoing negotiations over Brexit have also grabbed headlines, with a draft withdrawal agreement reached on 19 March finally signaling progress in EU-UK talks. The draft establishes a transition period that will kickstart once the UK leaves the EU in March 2019 and last until 31 December 2020. This should provide more certainty to businesses and prevent an outflow of capital from the UK, although thorny issues remain largely unaddressed, mainly regarding the border with Northern Ireland.

OUTLOOK | Global economy to accelerate marginally this year despite growing protectionism fears The sweet spot in which the global economy finds itself could quickly come to an end amid rising trade disputes between China and the United States. While the trade war appears to be circumscribed to these two countries for now, further antitrade measures against economies with large trade surpluses against the U.S., particularly the European Union, remain a possibility. Should these fears materialize, the ongoing stellar global trade cycle could sharply slow, hitting economic growth worldwide. Moreover, central banks are adopting a more hawkish tone in response to reduced economic slack which is beginning to push up inflation. Less accommodative monetary policies by key central banks could tighten financial markets and add downward pressure to global economic growth. FocusEconomics panelists expect the global economy to grow 3.4% in 2018, which is unchanged from last month’s estimate and would represent the strongest rate in seven years. In 2019, the global economy is seen decelerating slightly, to 3.2% growth. Although the 2018 GDP growth projection was unchanged from last month’s report, the economies of the Euro area and the United States both saw upgrades to their growth estimates. Growth prospects for Canada, Japan and the United Kingdom were left unchanged. 

4 April 2018 Among developing nations, China’s resilient economic growth, a strong global trade cycle and improving dynamics in India are shoring up economic activity in the Asia (ex-Japan) region. Eastern Europe, meanwhile, is benefiting from the ongoing economic recovery in Russia, solid growth among some key regional economies such as Romania and Turkey, and robust dynamics in the European Union. While the economic outlook in Latin America appeared to be more stable in recent months, political uncertainty in some countries continues to dent the region’s growth projections. Despite mounting geopolitical risks and economic imbalances, the outlook in the Middle East and North Africa, and in Sub-Saharan Africa, are gradually improving on the back of a higher commodity price environment.

Report and Data from FocusEconomics.