Take the above and combine with with the fact that a large portion of of all business is an offshoot of businesses and supply chains for the top firms in the world, thereby controlling even more of the dynamics at play.

Estimates put 20% of all global trade controlled by the largest companies in the world. That number seems a bit small when you factor in joint ventures, ancillary businesses and subsidiaries. - CH

Soybean prices rallied to an over one-year high in mid-July before reversing all monthly gains by early August. On 2 August, soybeans traded at USD 829 cents per bushel, which was 1.7% lower than on the same day last month. Moreover, the price was down 0.7% on a year-to-date basis and was 2.8% lower than on the same day last year. Prices were initially buttressed by continued adverse weather conditions causing major delays in U.S. soybean planting. However, a 29 July USDA report showed that, while still lagging the 5-year average, soybean crop conditions have recently improved sharply on more favorable weather, causing prices to pare back gains. Moreover, prices steeply fell in the wake of the escalation of the U.S.-China trade war on 1 August.

FocusEconomics Consensus Forecast - Commodities

Growth is expected to have lost steam in the second quarter, after a healthy expansion at the start of the year. The latest data continues to point to a two-speed economy, with lingering weakness in the manufacturing sector contrasting relatively robust services sector activity. The manufacturing PMI recorded its worst quarter since Q1 2013 in Q2, and a sharp downturn in industry confidence caused economic sentiment to fall to a near three-year low in June. However, the unemployment rate fell to a new over one-decade low in May and the services business activity index rose to a seven-month high in June. Meanwhile, on 2 July, the European Council nominated Christine Lagarde for ECB President, Ursula von der Leyen to head the European Commission and Charles Michel to lead the European Council. The nominees represent a largely pro-European integration stance and also the continued influence of Germany and France, although ultimately policy will be spearhead by heads of states. • Activity is seen slowing sharply this year amid a less favorable external environment, problems in the manufacturing sector and as uncertainty dent exports and investment growth. However, solid spending will curb the downturn. Risks stem from global protectionism, a sharp slowdown in China, resurging financial turbulence sparked by Italy and Brexit uncertainty. Growth is seen at 1.1% in 2019, which is down 0.1 percentage points from last month’s forecast, and 1.3% in 2020. • Harmonized inflation was steady at May’s 1.2% in June and remains below the ECB’s target of under but close to 2.0%. Moderate economic activity, low inflation expectations and subdued oil prices are expected to keep price pressures modest this year. Our analysts see inflation averaging 1.3% in 2019 and 1.4% in 2020. • Christine Lagarde, managing director of the IMF, was nominated to replace Mario Draghi as ECB president when his term ends on 31 October. Lagarde is expected to continue the course steered by Draghi. At the ECB’s 6 June meeting, the Bank pushed back the timing of a possible rate hike amid persistently low inflation. Shortly after, Draghi stated that more stimulus could be unleashed. Accordingly, our panel sees the refinancing rate ending 2019 at 0.00% and 2020 at 0.02%. • The euro remained broadly stable in recent weeks, as weak economic data and a dovish outlook for the ECB were balanced by dovish expectations for the U.S. Federal Reserve. On 19 July, the currency traded at USD 1.12 per EUR, a 0.1% gain month-on-month. The euro is seen remaining steady this year, then strengthening ahead as monetary policy normalizes. Our panel sees the euro ending 2019 at USD 1.14 per EUR and 2020 at USD 1.18 per EUR.

Insight from FocusEconomics Consensus Forecast Euro Area

Global growth is likely to dim this year, due largely to weaker momentum in developed economies and China. However, tight labor markets and more accommodative monetary policy should prop up activity. A further escalation of trade tensions, particularly between the U.S. and China, is the key downside risk

Canada
Economic growth will likely soften noticeably in 2019 compared to last year, amid weaker domestic demand growth and as a moderating global growth outlook hits exports. Volatile commodity prices, uncertain trade relations with the U.S. and elevated household debt pose downside risks.

Euro Area
Activity is seen slowing sharply this year amid a less favorable external environment, problems in the manufacturing sector and as uncertainty dent exports and investment growth. However, solid spending will curb the downturn. Risks stem from global protectionism, a sharp slowdown in China, resurging financial turbulence sparked by Italy and Brexit uncertainty.

Japan
Lower global demand should cause the economy to slow this year. Nevertheless, front-loading of consumer spending ahead of October’s sales tax hike should boost consumption somewhat. The trade outlook remains a key downside risk to growth, as a recent spat with South Korea adds to the U.S.-China dispute.

United Kingdom

The economy will perform poorly this year, held back by soft business investment and weaker growth in key trading partners. However, solid wage growth should underpin private consumption, while a more expansionary fiscal stance should also provide support. The highly uncertain outcome of Brexit remains the key risk to the outlook.

United States
The economy is expected to maintain its longest expansion in history this year, albeit at a slower pace as intensifying headwinds from weaker global growth and trade tensions weigh on momentum. Sustained consumer spending should taper the slowdown, however. The key risks to the outlook stem from a prolonged trade row and high corporate debt.

Switzerland
Inflation was stable at May’s 0.6% in June, and appears poised to remain feeble this year and next, owing to an overvalued franc and a slowing economy. Volatile oil prices and a potential rise in global economic uncertainty, which could boost safe-haven demand for the franc, could further dampen price pressures.

Focus Economics Major Economies Forecast, August 2019

Economic Outlook Moderates

In the second quarter of the year, the Chinese economy expanded at the weakest pace since at least 1992, as the trade war with the United States continued to undermine the external sector and investment. Nominal merchandise exports contracted in Q2, mostly reflecting weak global demand and spillovers from the China-U.S. trade spat. Moreover, trade disputes dragged on investment throughout the quarter despite increased bank lending causing a notable uptick in June. Volatility in China’s economic data is expected to continue further down the road until the trade dispute settles. In this regard, June’s strong economic data for the domestic economy should be taken with a pinch of salt until additional data can corroborate that growth has indeed effectively bottomed out. In late June, China and the U.S. agreed to restart trade negotiations, while the U.S. canceled new tariffs on Chinese exports.

Uncertainty regarding the China-U.S. trade war will continue to weigh on growth this year, while weak global demand and domestic economic imbalances are additional downside risks. That said, the government’s commitment to support the economy via fiscal stimulus and accommodative monetary policy should make the 6.0–6.5% growth target for this year attainable. FocusEconomics panelists see the economy growing 6.2% in 2019, which is down 0.1 percentage points from last month’s forecast, before decelerating to 6.0% in 2020.

Real Sector

Biggest slump in thirty years. In the second quarter of the year, the Chinese economy expanded at the weakest rate since at least 1992, when the National Bureau of Statistics (NBS) started to publish quarterly data. GDP expanded 6.2% in annual terms in Q2 2019, below both Q1’s 6.4% expansion and the 6.3% increase expected by market analysts. Nevertheless, growth is still within the government’s target of between 6.0% and 6.5% for 2019. Although the NBS does not provide a breakdown of GDP by expenditure, additional data suggests that the trade war continued to weigh on exports and outweighed authorities’ efforts to stimulate the domestic economy. Moreover, growth in fixed-asset investment moderated in Q2, mostly reflecting weaker manufacturing investment. Conversely, growth in retail sales was robust in the quarter, suggesting that private consumption is likely supporting overall growth. Seasonally-adjusted quarter-on-quarter GDP growth inched up from 1.4% in Q1 to 1.6% in Q2, while nominal GDP accelerated from a 7.8% year-on-year increase in Q1 to an 8.3% rise in Q2. Although GDP growth slowed in Q2, economic indicators for the domestic economy firmed up in June. Against this backdrop, Ting Lu, Lisheng Wang and Jing Wang, economists at Nomura, comment that: “Bulls might claim that this is a result of the resilience of the Chinese economy and the effectiveness of Beijing’s countercyclical easing measures. We recommend caution, as we see no strong signals that China’s economy bottomed out in June. And, like the blip of a recovery in March, the rebound of official activity data in June may not be sustainable. […] By taking lessons from their reactions to the March data, Beijing will likely interpret and respond to the June data with some extra caution. We believe activity data could drop again in the next few months and assign a high probability to an escalation of US/China trade tensions despite the recent agreement to renew trade negotiations. Thus, we find it quite likely that Beijing will step up policy easing/ stimulus towards Q4 and end-2019.” Looking forward, trade negotiations between China and the United States will continue to shape the economic outlook for the Asian giant. On this point, Yi David Wang, head of China economics at Credit Suisse, noted: “We maintain our annual growth outlook at 6.2% for 2019. There might be upticks to IP momentum as authorities shift their reliance back to infrastructure and real estate. That said, unless a more permanent resolution to trade negotiation is achieved in a timely manner and authorities can improve credit allocation efficiency, the uncertainty impact will be an ongoing drag to China’s manufacturing sector.”

FocusEconomics
FocusEconomics Consensus Forecast East & South Asia

Brent Crude

Brent crude oil prices stabilized in recent weeks after falling sharply in May and the first days of June on the back of fears of a global slowdown and escalating trade tension between China and the United States. On 5 July, oil prices traded at USD 64.2 per barrel, which was 3.3% higher than on the same day last month. Moreover, the benchmark price for global crude oil was 16.7% lower than on the same day last year, although it was up 27.0% on a year-to-date basis. Oil prices were influenced by diverging forces in recent weeks. Uncertainty about the health of the global economy and the trade spat between the two superpowers sparked concerns about a fall in demand for the black gold. Moreover, the U.S. continued to post new oil production highs thanks to its booming shale industry. On the other hand, oil production cuts by OPEC+, falling production in Venezuela, fears of supply disruptions in Libya and Nigeria, and U.S. sanctions against Iran’s oil industry threatened to tighten global oil supply. Looking forward, the decision by OPEC+ to extend oil production cuts until end-March 2020 is expected to support oil prices, as should a better relationship between China and the United States following the meeting between Presidents Donald Trump and Xi Jinping at the 28–29 June G20 summit. Oil prices could get another boost from escalating geopolitical tensions in the Strait of Hormuz, as relations between Iran and the United States deteriorate further. Nevertheless, subdued global growth and strong production in the U.S. will limit the gains. FocusEconomics panelists see prices averaging USD 67.7 per barrel in Q4 2019 and USD 66.2 per barrel in Q4 2020. In light of recent developments, 21 panelists left their forecasts unchanged for Q4 2019 from last month, 4 upgraded their projections, while 14 cut their projections. Diverging forces in the oil market are fueling uncertainty regarding the evolution of oil prices: The panelist forecast range for Q4 2019 spans from a minimum of USD 59.9 per barrel to a maximum of USD 80.0 per barrel.

WTI Oil

In recent weeks, West Texas Intermediate (WTI) crude oil prices recovered some of the losses recorded in May. WTI crude oil prices traded at USD 57.1 per barrel on 5 July, which was up 10.6% from the same day last month. While the price was down 21.9% from the same day last year, it was 26.4% higher on a year-to-date basis. The recovery in WTI crude oil prices mostly reflects increasing fears of a military confrontation between Iran and the United States in the Persian Gulf, especially after Iran shot down a U.S. drone above the Strait of Hormuz on 20 June. A military conflict in the region could disrupt global oil supply as the strait makes up about one-third of total global seaborne traded oil. Oil prices were also supported by expectations that the U.S. Federal Reserve could cut interest rates in order to rekindle economic growth. That said, the U.S. is currently pumping oil at a pace of above 12 million barrels per day, the highest in the country’s history, which limits any significant upswing in oil prices. Moreover, oil inventories in the United States are falling less than what market analysts had expected, suggesting that underlying demand for the black gold is relatively low. The EIA reported that inventories fell by 1.1 million barrels for the week ending 28 June, while markets had previously expected a drop of 3.7 million barrels. WTI oil prices are expected to rise, mostly on the back of the extension of the oil cut deal by OPEC+, supply concerns in some countries and an improved relationship between China and the United States. For Q4 2019, analysts expect prices to average USD 60.5 per barrel, before declining slightly in Q4 2020 to USD 59.5 per barrel. In response to recent developments, 4 upwardly adjusted their Q4 2019 forecasts compared to last month. Meanwhile, 12 panelists kept their projections unchanged and 14 cut their forecasts. Given current uncertainty, the spread between the minimum and the maximum oil price forecasts remains relatively wide: For Q4 2019, the maximum price forecast is USD 73.0 per barrel, while the minimum is USD 53.0 per barrel.

From: FocusEconomics Consensus Forecast Commodities, July 2019

Russia Economic Outlook July 2019

A second GDP estimate confirmed that the economy ran out of steam in the first quarter, amid a broad-based deceleration. Wholesale and retail trade contracted in Q1 as January’s VAT hike dented consumer demand, while a lackluster outturn in the manufacturing and constructions sectors further derailed growth. Moreover, constrained oil output and weak energy demand from Europe curbed mining activity, bringing merchandise exports to a near halt in Q1. Turning to Q2, soft momentum appears to have persisted. After rebounding in April, economic activity growth tumbled again in May, owing to a deterioration in the manufacturing sector. In addition, weaker household consumption likely played a role, as retail sales growth slid in the month. Going into Q3, the focus is on 1–2 July OPEC+ meeting, where oil output cuts are likely to be extended.

Sliding private consumption and a downbeat external sector will restraint growth this year, although an uptick in public spending should provide some relief. Meanwhile, growth in the short-term should pick up slightly thanks to monetary policy easing, while a stronger boost over the medium-term is expected as the “national projects” plan gains traction. FocusEconomics panelists see growth at 1.4% in 2019, which is unchanged from last month’s forecast. In 2020, GDP is seen increasing 1.8%.

Inflation ticked down to 5.1% in May (April: 5.2%), inching slightly closer to the Central Bank’s 4.0% target. Nevertheless, price pressures remained elevated following from January’s VAT hike and due to rapidly rising food prices. Inflation should ease going forward, supported by a stable ruble and soft consumer demand. Inflation is seen ending 2019 at 4.4% and 2020 at 3.9%.

On 14 June, the Central Bank trimmed its key interest rate by 25 basis points to 7.50%. The decision marked the first rate cut since March 2018 and came against the backdrop of gradually moderating inflation and slower-than-expected economic growth. The Bank’s relatively dovish tone signals that further policy easing is likely in the second half of the year. Accordingly, the majority of our panelists see the Bank cutting the rate by another 25 basis points by the end of the year. Consensus projects it to end 2019 at 7.13%. In 2020, the key rate is expected to end the year at 6.69%.

The ruble gained ground in recent weeks, strengthening to a 10-month high in mid-June, partly thanks to a strong demand for treasury bonds. Nevertheless, reduced hopes of a Fed rate cut curbed the currency’s gains. On 28 June, the RUB traded at 63.0 per USD, appreciating 2.2% month-on-month. Our analysts expect the ruble to largely stand its ground in the coming quarters. Our panel sees the ruble ending 2019 at 65.6 per USD and 2020 at 66.6 per USD.

REAL SECTOR -> Growth plummets in Q1 on broad-based frailties...
GDP growth plunged to 0.5% year-on-year in the first quarter of 2019, according to a second estimate released by Rosstat. This was notably below Q4’s 2.7% outturn and matched the preliminary figure. A breakdown by sectors revealed broad-based weakness across the economy. Notably, the wholesale and retail trade sector contracted 3.0% in annual terms, weighed on by the hike in the VAT that was introduced in January. In addition, the agricultural sector swung to contraction, declining 1.2% annually in Q1 (Q4: +2.3% year-on-year), while growth in the manufacturing sector picked up pace but remained muted (Q1: +0.6% yoy; Q4: +0.2% yoy). The construction sector also ground to a halt, recording zero growth after several major infrastructure projects were completed in 2018, while the government’s ‘National Projects’ program is off to a slow start. Meanwhile, growth in the mining sector was relatively robust, clocking in at 4.6% in Q1, but was well below Q4’s multi-year high of 7.7% nonetheless.

OUTLOOK -> Economic conditions deteriorate in May
The manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit
dropped from 51.8 in April to 49.8 in May, marking a nine-month low. As a
result, the index lies below the critical 50-point mark and points to contracting
activity in the manufacturing sector. May’s result reflected a notable drop in
employment, with firms shedding jobs at the fastest pace since March 2016.
In addition, new orders and output also lost steam.
The services sector also lost momentum in May, with the IHS Markit Russia
Services Business Activity index falling to 52.0 from April’s 52.6. Firms
reported a modest rise in new business and services providers shed jobs for
the first time since September. FocusEconomics Consensus Forecast panelists project fixed investment will expand 1.9% in 2019, which is down 0.1 percentage points from last month’s forecast. In 2020, the panel expects fixed investment to grow 2.3%.

Euro area Manufacturing PMI (Final, June): 47.6, Flash: 47.8, Previous: 47.7

Germany Manufacturing PMI (Final, June): 45.0, Flash: 45.4, Previous: 44.3

France Manufacturing PMI (Final, June): 51.9, Flash: 52.0, Previous: 50.6

Italy Manufacturing PMI (June): 48.4, GS: 49.1, Consensus: 48.7, Previous: 49.7

Spain Manufacturing PMI (June): 47.9, GS: 49.8, Consensus: 49.5, Previous: 50.1

Italian manufacturing PMI fell by 1.3pt to 48.4 in June, below market expectations. 

SPAIN
Spanish manufacturing PMI also fell considerably, slipping by 2.7pt to 47.9, well below expectations. This reflected notable weakness in new orders, output, and employment. The drag on the industrial sector was largely attributed to global trade tensions and political uncertainties.

Incoming data points to slightly weaker growth in the second quarter, on the heels of a strong Q1 upturn that was buoyed by a robust rebound in fixed investment. Although industrial production bounced back solidly in April, the composite PMI fell to a five-and-half-year low in May, weighed on by broadly stagnant manufacturing activity. Moreover, while retail sales remained firm in April, employment growth slowed in April and May, which, coupled with consumers turning more pessimistic over the same period, suggests that private consumption has lost some stride. In the political arena, after scoring important wins in the recent national, regional and local elections, acting Prime Minister Pedro Sánchez is set to be sworn in the investiture vote to take place next month. Falling short of a parliamentary majority, however, his Socialist Party (PSOE) is likely to rely on left-wing Unidas Podemos and smaller regional parties to govern.

INDUSTRIAL PRODUCTION

Industrial production rose 1.7% year-on-year in seasonally- and calendar adjusted terms in April, rebounding from March’s revised 3.0% contraction

(previously reported: -3.1% year-on-year). Despite the upturn, the annual

average variation in industrial output remained at minus 0.3% in April, which

had turned negative for the first time in five years in March.

April’s increase reflected improved dynamics in most major sectors. The

production of consumer goods rebounded strongly, while capital and

intermediate goods production picked up compared to March. Meanwhile,

energy output contracted for the third month running in April.

On a month-on-month basis, adjusted for seasonal and calendar effects,

factory output climbed 1.8% in April, rebounding from the 1.2% slip logged

in March.

REAL SECTOR
The Spanish Board of Architects approved 9,405 new construction permits in March, according to data published by the Ministry of Public Works. The figure was above both the 8,461 permits granted in March 2018 and the 9,175 permits granted in February. On an annual basis, permits rose 11.2% in March, slightly above February’s 10.5% upturn. The moving three-month sum of permits totaled 27,886 in March, which represented an 18.9% increase from the same period last year and followed the 23.6% expansion recorded in February. That said, the current number of permits represents a mere fraction of the 268,266 permits that were granted during the July–September 2006 peak.

RETAIL SALES
Retail sales rose 2.0% in year-on-year terms in April, marking a six-month high and following the soft 0.2% upturn logged in March. The print largely reflected a strong increase in food sales more than offsetting lower sales of personal equipment goods. On a distribution-based system, sales at small and large chain stores picked up notably compared to March while they rebounded at department stores. Meanwhile, purchases at single retail sales contracted for the second consecutive month in April.

EXTERNAL SECTOR
Spain’s current account balance recorded a tiny surplus of EUR 26 million
in March, smaller than the EUR 389 million surplus recorded in March 2018
but much greater than the EUR 2.8 billion deficit logged in February. In the
12 months up to March 2019, the current account balance reached a surplus
of EUR 9.0 billion, the smallest since October 2014 and below the EUR 9.4
billion recorded in the 12 months up to February.
According to the Bank of Spain, the lower current account surplus compared
to the previous year reflected the smaller trade surplus recorded in March
2019 of EUR 1.2 billion—mainly the result of imports growing more than
exports—below the EUR 1.8 billion logged in March 2018.

Thank you Goldman Sachs and Focus Economics

Comprehensive GDP data for the first quarter confirmed that the relatively robust expansion was mostly propelled by a sharp decline in imports of goods and services. Underlying domestic demand, meanwhile, appeared weak as reflected by lackluster private consumption in Q1, raising concerns over Prime Minister Shinzo Abe’s plans for household demand to drive economic growth. Turning to the second quarter, consumer confidence tumbled to an over three-year low in May, which does not bode well for a recovery in consumer spending and leaves Abe at a crossroad whether to move ahead with a controversial sales tax in October. Japan’s economic prospects are quickly worsening as escalating trade tensions, especially between China and the United States, could further erode global demand and, in turn, Japan’s all-important external sector.

Faltering global demand is expected to weigh on growth this year. Conversely, the economy should benefit from frantic front-loading of consumer purchases ahead of October’s sales tax. The key downside risks are further trade restrictions, which would reduce demand for Japanese goods, as well as weaker global growth, which could strengthen the yen. FocusEconomics panelists see the economy growing 0.8% in 2019, which is unchanged from last month’s forecast, and 0.5% in 2020.

Inflation jumped to 0.9% in April from 0.5% in March. Price pressures nevertheless remain relatively muted, mostly reflecting Japan’s firmly entrenched deflationary mindset, strong productivity gains and increased competition largely thanks to technological progress. Looking forward, the sales tax hike scheduled for October should boost inflation significantly. FocusEconomics panelists expect inflation to average 0.8% in 2019, which is unchanged from last month’s estimate, before reaching 1.1% in 2020. 

The Bank of Japan (BoJ) kept its monetary policy on hold and forward guidance was unchanged at the 19–20 June meeting. The Bank supported its decision on the back of subdued inflationary pressures and an uncertain global economic outlook. That said, the BoJ could expand its monetary stimulus as soon as in Q3 in the event of a rate cut by the Fed. A majority of FocusEconomics panelists expect the BoJ’s short-term policy rate to remain unchanged at minus 0.10% until at least the end of 2020.

Rising global trade tensions continued to fuel demand for safe-haven assets in recent weeks, leading the yen to strengthen against the U.S. dollar. On 20 June, the yen traded at JPY 107.3 per USD, appreciating 2.6% month-on-month. Looking forward, the evolution of the yen will be mostly determined by external events such as the trade war and global growth prospects. Panelists see the yen trading at JPY 108.1 per USD at the end of 2019 and at JPY 106.7 per USD by the end of 2020.

Summer is in full swing and so is the geopolitical storm - Chad


Euro Area: ECB pushes back possible rate hike at June meeting The European Central Bank (ECB) turned more dovish at its June monetary policy, responding to the bloc’s softer growth momentum. The ECB pushed back the timing of a rate hike and left interest rates at record-low levels.


Germany: Industrial sector not out of the woods yet Industrial production fell 1.9% month-in-month in April in seasonally- and calendar-adjusted terms, swinging from March’s 0.5% increase. Production in the energy sector was down noticeably; the construction sector, however, provided a small silver lining as production increased marginally.


Greece: New Democracy expected to win general election but slow economic recovery set to continue Polls show that conservative opposition New Democracy (ND), led by Kyriakos Mitsotakis, maintains a sizeable lead over Syriza, signaling that not only will it win the national vote on 7 July but could even secure an absolute majority in the 300-seat Parliament as well. Although Mitsotakis’ victory would imply a shift to a more market-friendly policy mix that may provide a boost to business confidence, the economy’s slow pace of recovery is set to persist in the near-term owing to structural fragilities and authorities’ adherence to strict fiscal targets agreed with Eurozone lenders.


France: Domestic demand propels growth in Q1 France’s economy grew a seasonally-adjusted 0.3% quarteron-quarter in the first quarter. Although first-quarter growth was unaltered from the preliminary estimate, revisions to last year’s fourth quarter—which was revised up to 0.4% from 0.3%— suggest that growth tapered somewhat at the outset of the year.


Italy: Risk of unprecedented fine and resurging financial turmoil elevated The European Commission could launch an excessive deficit procedure against Italy in the next few months for breaking spending and borrowing rules, unless convincing measures are swiftly adopted. The EC tabled a disciplinary procedure against Italy over its failure to comply with the debt reduction benchmark in 2018 and on expectations that the country will not comply with the debt reduction benchmark either in 2019 or in 2020. Second estimate trims Q1’s rebound GDP ticked up 0.1% in the first quarter over the previous period in seasonally- and working-day adjusted terms. The Italian economy returned to growth in Q1, after languishing in technical recession in the last two quarters of 2018, supported by the external sector and by a slight increase in domestic demand net of inventories.


Spain: Composite PMI falls to five-and-a-half-year low in May Largely reflecting slower activity growth in the manufacturing sector, the IHS Markit composite Purchasing Managers’ Index (PMI) declined to a five-and-a-half-year low of 52.1 in May from 52.9 in April.


Italy In Depth:
A second estimate of GDP trimmed down the first quarter’s meager rebound, and revealed a somber picture of the economy. Plunging imports explained the improved performance of the external sector, which boosted the economy out of technical recession, while destocking weighed heavily on GDP growth, as dismal demand prospects prompted firms to lighten inventories. Data for Q2 still points to a limping economy: In April, industrial production contracted again, and the manufacturing PMI remained stuck in contractionary terrain in May. Meanwhile, clouds are forming on the political horizon: On 5 June, the European Commission stated that the opening of an excessive deficit procedure against Italy was “warranted”, due to the country’s high debt load and lack of a credible plan to address it. Although the government stated it will stick to EU rules, and despite some recent budget reprieve hopes which supported Italy’s bond market, the possibility that the Commission could take further disciplinary steps in the months to come remains on the table. The economy is poised to stagnate this year, weighed down by languishing domestic demand and slower growth in the EU. Political and fiscal uncertainty and feeble credit extension will likely depress investment, while consumer spending will be constrained by muted productivity growth and weak job creation. The risk of turbulence in the financial markets clouds the outlook. FocusEconomics panelists project growth of 0.1% in 2019, which is unchanged from last month’s projection, and 0.6% in 2020.  Harmonized inflation dropped to 0.9% in May from 1.1% in April. The slowdown came mainly on the back of slower increases in prices for services related to transport, and energy products. Inflation should remain subdued this year, kept in check by anemic domestic demand and stagnant wages. FocusEconomics panelists expect inflation of 0.9% in 2019 and of 1.1% in 2020.



UK In Depth:
The economy has likely lost momentum in the second quarter, after Brexit stockpiling flattered the first-quarter GDP reading. Economic activity contracted sharply in April, albeit in part due to a temporary shutdown at car manufacturing plants. Moreover, the manufacturing PMI dived into contractionary territory in May for the first time in several years on lower export orders. On the flipside, the unemployment rate is at a multidecade low, while wage growth is comfortably outpacing inflation, which is feeding through to solid retail sales. On the political front, the race to choose a new Conservative Party leader—and by extension the next prime minister—continues. Boris Johnson, who has advocated leaving the EU on 31 October with or without a deal, remains the clear favorite. However, all options remain on the table, including a general election, second referendum, leaving the EU with a deal and not leaving at all. This year, muted business investment, coupled with ebbing momentum in key trading partners such as the EU and U.S., will restrain the economy. However, the robust labor market should support private consumption, while a more expansionary fiscal stance should also buttress the economy. The highly uncertain outcome of Brexit remains the key risk to the outlook. FocusEconomics panelists expect GDP growth of 1.3% in 2019, which is unchanged from last month’s forecast. For 2020, panelists see the economy expanding 1.4%. • Inflation decreased to 2.0% in May (April: 2.1%) on softer transport inflation, hitting the Bank of England’s target. Going forward, inflation is likely to dip slightly in H2 amid lower energy prices and mild economic momentum, but stay fairly close to target. FocusEconomics panelists expect inflation to average 1.9% in 2019, which is unchanged from last month’s forecast, and 2.0% in 2020.

A sharp drop in oil prices and its derivatives, especially WTI and gasoline, led the overall decline in energy prices. The drop reflected escalating trade tensions globally, which could exert additional downward pressure on an already weakening global economy. Moreover, natural gas prices hit a nearly three -year low on high inventories and strong production. Although thermal coal prices posted the first monthly gain in 10 months in May, prices plummeted in the first days of June, suggesting that downward pressures on thermal coal prices are far from over.

Brent crude oil prices tumbled in recent weeks following the rally observed since the start of the year. On 5 June, oil prices hit a nearly four-month low and fluctuated at similar levels in the following days. On 7 June, oil prices traded at USD 64.1 per barrel, which was 9.7% lower than on the same day last month. Moreover, the benchmark price for global crude oil was 14.8% lower than on the same day last year, although it was up 26.8% on a year-to-date basis. The decline in oil prices mostly reflects slowing economic activity in key economies such as China and Korea. Escalating trade tensions between China and the United States, as well as the prospect of new trade wars between the U.S. and other players including Australia, India and Mexico, have reinforced this trend. On the supply side, record oil production in the United States is also exerting downward pressure on oil prices. The recent fall in oil prices comes despite the reimplementation of sanctions against Iran and OPEC’s strict oil production cuts, amounting to more than two million barrels since the start of the year according to the cartel’s latest report. Against this backdrop, Saudi Oil Minister Khalid al-Falih stated on 3 June that there is growing consensus among producers to extend the current oil cap deal beyond the end-of-June deadline.

West Texas Intermediate (WTI) crude oil prices plummeted in recent weeks and, on 5 June, hit a five-month low. WTI crude oil prices traded at USD 54.0 per barrel on 7 June, which was down 12.1% from the same day last month and was down 18.2% from the same day last year. Nevertheless, the price was 19.5% higher on a year-to-date basis. The sharp drop in WTI crude oil prices reflects concerns about the health of global growth and surging production in the United States. In recent weeks, the U.S. increased tariffs on Chinese goods and removed India from its Generalized System of Preferences program, which gives developing economies preferential access to the U.S. market. Moreover, Trump threatened to impose tariffs on Australian and Mexican imports as well as levy all remaining Chinese imports. A sustained increase in trade protectionism could hit global growth and reduce demand for the black gold. On the supply side, the United States continued to pump oil at record levels, pushing down oil prices, and will likely continue to do so in the coming months given that the number of oil rigs rose in the week ending 31 May. In a sign that the oil market is well supplied, the EIA’s latest report showed that oil inventories climbed by 6.8 million barrels for the week ended 31 May.

Thank you FocusEconomics

On a call this morning the Mexico tariffs were discussed.
A few takeaways:

The tariffs proposed last night were metered and tiered with planned dates with amounts between 5% - 25%.  It is worth noting that Mexico is working with the US to stop any development on the threatened tariffs. However, also noted: Mexico is puzzled at "the best way to show immediate progress to combat the tariffs."

This approach is different from the last, and that has caused alarm.

Does this cancel NAFTA?  In the short term, no.

- Chad Hagan

Venezuela is descending into chaos, the crisis has deepend. - Chaganomics

U.S. flights to Venezuela are being suspended due to safety and security concerns, officials with the U.S. Department of Homeland Security said Wednesday. - ABC News

The political and economic crisis deepened over the past month. On 30 April, opposition leader Juan Guaidó called for a military uprising to remove President Nicolás Maduro from office. The attempt, however, failed as it did not attract meaningful military support, raising uncertainty over the opposition’s future going forward. Meanwhile, oil production took another nosedive in March as widespread power outages and crippling U.S. sanctions took their toll. Production fell a staggering 289,000 barrels per day (bdp) from February, which amounts to an over 36% plunge since January, according to OPEC data. Moreover, U.S. and Canadian authorities announced new sanctions against the Venezuelan government in April, most notably targeting the country’s Central Bank and several high-ranking officials, including the foreign minister. In other news, on 7 May, the opposition-controlled National Assembly authorized a USD 71 million interest payment on PDVSA’s 2020 bond. The failure to pay could have prompted creditors to try to seize a sizeable chunk of shares in its U.S. refining unit Citgo, the country’s most valuable overseas asset.

The outlook remains bleak. Uncertainty remains elevated over what happens next in the political standoff between President Maduro and Juan Guaidó, while successive rounds of sanctions aimed at choking off the government’s access to hard currency worsens the already-dire state of the economy, which has been stuck in deep depression for years. The probability of a political transition remains high, a scenario which some of our panelists have factored into their forecasts.  - Focus Economics

Economic Outlook Worsens For Turkey...

The Turkish economy continued to flag at the start of the year. Consumer credit growth eased to a decade low in Q1 2019, while retail sales continued to contract in the first two months of the year. Consumer spending felt the pinch from high unemployment, depressed confidence levels, still-elevated inflation and a weak currency. Moreover, the manufacturing sector remained in a tough spot as reflected by its weak PMI reading throughout Q1 and April. Against this backdrop, the government announced new reforms in early April in an attempt to stimulate the economy. In more positive news, tourism income rose robustly in the first quarter of the year as the number of visitors increased noticeably from a year earlier, likely aided by the starkly cheaper lira. Meanwhile, the trade deficit narrowed as imports continued to fall sharply through March in tandem with the plunging lira.

The economy is expected to shrink this year on the back of falling domestic demand due to high inflation, rising unemployment and a weak currency. Towards the end of the year, the economy should recover and inflationary pressures should ease, which would provide room for monetary policy easing.

Inflation eased to 19.5% in April from 19.7% in March. This year, price pressures should ebb due to tight monetary policy and frail domestic demand, although they will likely remain elevated in the months ahead on an unsupportive base effect.

Turkey’s manufacturing sector opened the second quarter on a sour note: The Purchasing Managers’ Index (PMI) ticked down to 46.8 in April from 47.2 in March, indicating that operating conditions worsened at a stronger pace. The latest print marked the 13th consecutive moderation in business conditions. The latest downturn in the index, produced by the Istanbul Chamber of Industry in cooperation with IHS Markit, came on the back of a further drop in new orders, both domestic and foreign, driving production down and leading to more moderate purchasing activity. The drop in domestic new orders was sharper than new business from abroad. Weak new orders also drove destocking activity, with pre- and post-production inventories shrinking at a quicker pace compared to March. Ongoing currency weakness vis-à-vis the greenback was again a noticeable drag on the sector. The weak lira drove input costs to the highest level since October last year and this consequently pushed output prices up to a six-month high. Furthermore, suppliers’ delivery times lengthened again amid payment difficulties, likely linked to demand weakness. Andrew Harker, associate director at IHS Markit, noted that there was a silver lining in April: “More positive was the labour market situation, with employment broadly stable amid signs that firms are looking to the future and working on new products in anticipation of an improvement in business conditions later in the year.”

Reporting from:

 

The Best Cities in the UK For Startups

Location, location, location. Even in an increasingly digital world, choosing the right city to launch your startup in is an incredibly important decision. Running out of money is often a leading cause of startup death, and different cities around the UK offer wildly varying levels of support and funding for business. For example, whilst London is often see as the go-to location for budding UK businesses, the chances of actual surviving - never mind thriving - are pretty grim. Just 50% of businesses survive beyond three years in the capital city. Factors like high office rents, intense competition, and rising costs of living all play a part of this.

So, when choosing a location for your new venture it’s vital to be strategic and consider all of your options beyond the more obvious choices. With this in mind, Total Processing have put together a map using data from the Office for National Statistics. It contains all the essential information you need about cities all over the UK, from the far reaches of Scotland to the south coast.

The map includes information on how much business activity has grown over the past 5 years in various cities, which gives an indication of how much support is available and whether local authorities are focusing on helping businesses to thrive. For example, Manchester is the home of the Northern Powerhouse, with big pushes to bring businesses to the area and encourage economic growth in the city. This is reflected by its impressive growth in business activity - there’s been a 62% increase in 5 years, with 6,445 enterprises launching there in the past year.

Total Processing have also incorporated information on average survival rates for businesses over 5 years to help you figure out your chances for long term success! Plus, definitely take a look at the final section to see which industries are currently booming, and which are on the decline. Perhaps it’s time for a pivot?

See the full map below and let us know what you think in the comments. Which city do you think is the UK’s most enterprising in 2018?

Despite a confirmed rebound in economic activity in the fourth quarter of last year, available data suggests that growth was weak in the first quarter of 2019. The average manufacturing PMI hit an over two-year low in Q1, as nominal exports contracted for the third consecutive month in February amid an economic slowdown in China. Moreover, consumer confidence deteriorated markedly at the outset of the year, which does not bode well for private consumption this year, while machinery orders—a leading indicator for investment in the coming three to six months—contracted for the third period in a row in January. In light of recent developments, the government downgraded its assessment of the economy for the first time in three years on 20 March. This could prompt Prime Minister Shinzo Abe to take action ahead of the election in the upper house, which is to be held this July.

Front Loaded consumer spending ahead of the planned sales tax hike in October and a recovery in gross fixed investment—partially due to works related to the Tokyo 2020 Olympic Games—will shore up economic growth this year. On the downside, the economy will feel the pinch of weak global demand, especially from China and Europe. FocusEconomics panelists see the economy growing 0.8% in 2019, which is down 0.1 percentage points from last month’s forecast, and 0.6% in 2020. • Inflation stabilized at January’s 0.2% in February, well below the Bank of Japan’s (BoJ) inflation target of 2.0%. Inflation should pick-up further down the road, although it will remain well below the Bank’s target. Against this backdrop, government officials and a banking lobby criticized the target and vowed for a more flexible approach. FocusEconomics panelists expect inflation to average 0.9% in 2019, down 0.1 percentage points from last month’s estimate, before reaching 1.3% in 2020. 

The BoJ left its monetary policy steady at the 14–15 March meeting on subdued price pressures. Governor Haruhiko Kuroda downgraded his view on the Japanese economy on weak global demand impacting the country’s all-important external sector. However, he stated that the domestic economy will remain robust, which should support core inflation. A majority of FocusEconomics panelists expect the BoJ’s short term policy rate to remain unchanged at minus 0.10% until at least the end of 2020. 

The yen was broadly stable against the USD in recent weeks on hopes that China and the United States were close to reaching a trade deal, along with signs that Japan’s ultra-loose monetary policy will remain in place for the foreseeable future. On 22 March, the currency traded at JPY 109.9 per USD, a 0.7% appreciation compared to the same day in February. Panelists see the yen trading at JPY 108.3 per USD at the end of 2019 and at JPY 106.7 per USD by the end of 2020.

Consumer sentiment declined from 41.9 in January to 41.5 in February, marking the lowest reading since December 2016. The print disappointed market expectations of a softer fall to 41.6. The consumer confidence index measures consumers’ expectations for the next six months on a scale of 0–100; a figure of 100 indicates that all respondents see their living standards improving. Consumers were noticeably more pessimistic about their overall livelihood category and their willingness to buy durable goods. Households confidence about their income growth waned somewhat. Conversely, job prospects improved in February. Regarding prices, expectations of higher prices rose slightly in February, with 86.0% of respondents expecting prices to trend higher (up 1.9 percentage points from last month’s survey). FocusEconomics Consensus Forecast panelists expect private consumption to rise 1.0% in 2019, which is unchanged from last month’s forecast. In 2020, the panel sees private consumption growing 0.2%.

The core consumer price index rose 0.2% in month-on-month seasonally adjusted terms in February, matching January’s result. Core inflation inched down from January’s 0.8% to 0.7% in February. The reading was a notch below the 0.8% that market analysts had expected. Nevertheless, inflation remained well below the Bank of Japan’s inflation target of 2.0%. Overall inflation stabilized at January’s 0.2% in February. Core inflation in the Ku-area of Tokyo rose from January’s 1.1% to 1.2% in February. Data for March will be released on 29 March. The median inflation forecast among BoJ members is 1.1% for FY 2019 and 1.5% for FY 2020, including the effects of the consumption tax hike. FocusEconomics Consensus Forecast panelists expect inflation of 0.9% in calendar year 2019, which is down 0.1 percentage points from last month’s estimate. In 2020, the panel sees inflation at 1.3%.

If there is one factor that has kept the global economy in suspense for most of 2018 and thus far this year, it is of course the escalating trade tensions between the world’s two largest economies: China and the United States. In what appears to have been a positive development, the U.S. declared a truce on new trade tariffs for 90 days in early December, paving the way for both countries to start a new round of trade negotiations. Citing substantial progress in bilateral talks, U.S. President Donald Trump announced on 24 February that new tariffs would be postponed indefinitely. Since then, there has been rising optimism that both countries are close to sealing a trade agreement that would put an end to the Sino-American trade war. However, in reality, how close are we to a comprehensive agreement that would remove one of the key downside risks to the global economy? Which of the U.S. demands will be met? How can the deal be enforced? These are the pivotal questions we wish to shed some light on with this Special Survey on the China-U.S. trade war.

Along with the trumpeted reduction of the massive U.S. trade deficit with China (around USD 320 billion in 2018), the U.S. administration is seeking to gain further concessions from the Asian giant via a comprehensive trade deal. A reduction in the trade gap between the two countries, the strengthening of intellectual property rights and greater market access for U.S. companies are seen as the most likely action points to be rubber-stamped in the deal. However, tackling more controversial points such as forced technology transfer and state subsidies is less likely given that they are central to upgrading China’s manufacturing industry and the country’s economic development model more broadly.

“Forced tech transfer and espionage are controversial and China would likely not accept including specific details about these type of activities in a trade deal document. China will likely focus more on the first two items as the key structural offer in any negotiation.” 
- Shaun Roache, Chief Economist APAC at S&P Global Ratings

Despite speculation that both countries are close to striking a trade deal, a majority of the analysts surveyed consider that the upcoming agreement will not be conclusive. Instead, analysts contemplate an interim agreement as the most likely outcome of recent trade talks. Against this backdrop, there is still a significant chance that there is an escalation in trade tariffs before an agreement is reached. On average, there is around a one-third possibility that both countries implement new punitive measures.

The Ides of March continue....Brexit delayed; final outcome remains unclear On 21 March the EU agreed to delay Brexit until 12 April to give the UK parliament more time to coalesce around a way forward. While this move shifts the date of a possible no-deal Brexit back by two weeks, it does nothing to reduce political uncertainty, which will continue to hinder business investment and the economy until clarity emerges regarding the final outcome of the Brexit process. A further vote on the prime minister’s deal is possible in the coming days. If the deal is approved, Brexit will be further delayed until 22 May to allow the passage of necessary legislation. If the deal is rejected, the UK will have until 12 April to decide how to proceed. According to James Smith, an economist at ING: “Those Brexiteers that calculate a long delay is inevitable may… still decide to back it [Theresa May’s deal], while those more moderate MPs that fear ‘no deal’ may also decide to get behind it – although we suspect there will be nowhere near the numbers needed for May to get her deal passed.” Assuming the deal is rejected—or Theresa May declines to present her deal to parliament altogether—all options remain on the table. Parliament could agree on a softer Brexit stance—in favor of a permanent customs union or continued membership of the Single Market for instance—and subsequently request a further Brexit delay in order to make the corresponding changes to the political declaration with the EU.

The UK could also request a further Brexit delay to hold a second referendum or a general election, or could even decide to unilaterally revoke its decision to leave the EU. This last option, however, appears improbable. On 25 March, MPs voted to take charge of the parliamentary timetable, shifting control of the Brexit process away from the prime minister. This move sets up a series of “indicative votes” on Wednesday 27 March to assess which Brexit options could command a majority in parliament, although Theresa May has not yet promised to abide by the outcome of the votes. MPs’ decision to take control could even boost the chance of Theresa May’s deal being approved, by encouraging pro-Brexit Conservatives to back it for fear of an even softer Brexit, or no Brexit at all. It is still perfectly possible that parliament fails to agree a course of action by 12 April. If this is the case, the government could ask for a further delay regardless, although the EU may be reluctant to agree. As Kallum Pickering, an economist at Berenberg, says: “the EU would most likely not grant a longer delay for the UK to just continue voting on May’s deal again.” If the EU refuses a request for a second extension, or the UK decides not to ask for one, the UK would leave the EU with no deal on 12 April, likely severely denting economic activity in the near-term.

\The economy remains stuck in low gear in the three months to January According to monthly GDP data released by the Office for National Statistics (ONS), economic activity rose 0.5% in January over the prior month in seasonally-adjusted terms, contrasting December’s 0.4% fall. Despite the strong January showing, the quarter-on-quarter expansion for the November- January period was a mere 0.2%, matching the reading for October-December, and comes amid sluggish momentum in the rest of the EU and elevated Brexit uncertainty. Looking at a sector-by-sector picture, the November-January reading was underpinned by a solid showing from the service sector, which was partially offset by contractions in the industry and construction sectors. FocusEconomics panelists expect GDP growth of 1.3% in 2019, down

The political standoff between President Nicolás Maduro and Juan Guaidó, who declared himself interim president on 23 January and has been recognized as such by more than 50 countries, is far from over. Following the unsuccessful attempt by Guaidó and his allies to deliver aid into the country on 23 February, the opposition leader embarked on a support-seeking tour across the region before returning to Venezuela without incident on 4 March, despite breaking a court-imposed travel ban, to continue pressing on President Maduro to step down. Meanwhile, the diplomatic and economic pressure continues to mount as the U.S. announced new sanctions targeting high-profile figures in the Venezuelan government and military. This follows the painful sanctions imposed on the all-important oil industry in late-January, which have led government officials to scramble in seeking alternative markets to sell crude and securing access to its gold reserves as well as much-needed foreign currency. The latest power outages, which have been running for nearly a week, complicate matters further as they are set to impact oil operations and disrupt day-to-day economic activity.

The outlook is grim. On the one hand, the political situation remains in limbo, with the Maduro government likely opting to wait out the crisis while Guaidó strives to keep up the momentum. On the other hand, financial sanctions aimed at choking off the government’s access to external financing and its oil revenues inflict more damage to an already crippled economy besieged by run-away inflation and goods shortages. The possibility of political change has increased amid the latest events, a scenario which some of our panelists have factored into their forecasts. FocusEconomics panelists see the economy contracting 12.4% in 2019, which is down 2.1 percentage points from last month’s forecast. In 2020, the panel sees GDP falling 2.5%.

Panelists estimate inflation to have ended 2018 at nearly 1,300,000%. Last year’s monetary reconversion has been unable to tame hyperinflation while sanctions are set to worsen goods scarcities going forward, further fueling inflationary pressures. Our panel sees inflation surging to over 70,000,000% by the end of 2019, before falling to around 1,500,000% by the end of 2020. Despite the sharp devaluation of the currency in late-January which brought the official rate roughly up to par to the black market’s, the differential between the two has started to widen yet again. The official DICOM exchange rate came in at 3,300 VES per USD in the 8 March auction, while the parallel market rate fell to 3,603 VES per USD that same day. Our panelists expect the official rate to end 2019 at 243 million VES per USD, before rising to 1.1 billion VES per USD by the end of 2020.