Difficult signal

Tuesday, 2019-08-13 14:11:16
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Steel rolls are pictured at the plant of German steel company Salzgitter AG in Salzgitter, Germany March 5, 2019. (Photo: Reuters)
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NDO - The US-China trade war and the gloomy future of Brexit (Britain’s split from the European Union) have had a negative impact on Europe's two leading economies, Germany and France. This has also “darkened” the economic growth prospects of the entire Eurozone.

From the end of 2018, analysts have made pessimistic forecasts for the leading economies of Europe. Most economic experts said that Germany will face the risk of declining growth due to the impacts of the US-China trade war, the US car tax rates and the risk of a no-deal Brexit. This double impact could end Germany’s “golden growth decade”.

The gloomy economic situation in recent months shows that the above “scenario” is becoming a reality. The German Federal Statistical Office (Destatis) has said that in June, German exports declined sharply compared to the same period in 2018, affecting growth in the second quarter of this year. Accordingly, German exports fell to EUR106.1 billion, a drop of 8% compared to the same period in 2018. Notably, In June, German exports of goods to countries outside the European Union (EU) fell sharply by 10.7% year-on-year. German imports of goods from non-EU countries also fell by 8.9 %.

According to Destatis, exports account for nearly half of the economy's value, and automobiles are Germany's key export products with annual sales of US$230 billion.
The most important market for German cars in 2018 was the US, with revenue of EUR27.2 billion, followed by China with EUR24.7 billion and the UK (EUR22.5 billion). Therefore, as the US-China trade war escalates, with the US-EU trade relations going badly and Brexit facing uncertain prospects, the German economy will be negatively affected.

Meanwhile, other important economic indicators of the German economy also fell into a gloomy situation. German consumer sentiment was “less optimistic” in July, according to a study published by Germany's largest market research institute GfK. In another survey, the Ifo Institute said that business confidence in Germany in June also dropped to the lowest level since November 2014; while the business climate index fell for the third consecutive month to 97.4, making the growth rate of the largest European economy fall in the second quarter of this year.

The situation in France, another “economic locomotive” of European, is also not very positive. The National Institute of Statistics and Economic Studies (INSEE) has just released a report on its economic situation in the second quarter of 2019. Accordingly, the second largest European economy grew slower than forecast, at only 0.2%.

According to INSEE, although French President E. Macron has announced a number of measures since April to appease the "yellow vest" protesters involved in the government's spending plan, but people's spending on goods and services has levelled off. With that fact, analysts believe that the French government will find it difficult to achieve the economic growth target of 1.4% set in 2019.

The European Central Bank (ECB) has lowered Eurozone's economic growth forecast for 2019 and next year. Accordingly, Eurozone economy will only grow by 1.1% this year, down 0.6% from the previous forecast; in 2020, the regional economy will grow by 1.6% instead of the previous 1.7%.

With the current disadvantageous situation of the region and the world, prospects of Germany and France economies are gloomy, it seems that ECB forecast is still too optimistic and it is likely that the bank will have to adjust the exchange rate policy as well as the above forecast figures in the coming time.