Europe fo­cuses on growth, Fed to fol­low mid-terms

Tehran Times - - ECONOMY -

New eco­nomic fore­casts from the Euro­pean Com­mis­sion and ser­vices PMIs will help clar­ify the out­look for the euro zone econ­omy af­ter third-quar­ter growth dis­ap­pointed, while midterm elec­tions and a Fed­eral Re­serve meet­ing top the U.S. agenda.

The Euro­pean Union’s ex­ec­u­tive will pub­lish its quar­terly eco­nomic fore­casts on Thurs­day for the 28 EU mem­ber coun­tries - in­clud­ing Bri­tain, which is due to leave the bloc in March - and for the euro zone as a whole.

Its pro­jec­tions come af­ter Oct. 30 data showed the euro zone econ­omy grew only half as much ex­pected in the third quar­ter. The pre­lim­i­nary flash es­ti­mate of 0.2 per­cent was also half the 0.4 per­cent seen in Q2 and was the slow­est pace of growth in more than four years.

The Com­mis­sion’s eco­nomic sen­ti­ment in­dex for the euro zone mean­while dropped in Oc­to­ber for the 10th con­sec­u­tive month, and a weak flash Pur­chas­ing Man­agers’ In­dex (PMI) sur­vey sug­gested there will be lit­tle pick up in the fi­nal three months of 2018.

“If you look at the state of the euro zone econ­omy, it is slow­ing. Last year growth was above trend and now there are lots of con­cerns about trade,” said Brian Gi­u­liano, vice pres­i­dent of port­fo­lio man­age­ment for fixed in­come at Brandywine Global in Philadel­phia.

In its last fore­casts in July, the Com­mis­sion said it ex­pected the 19-coun­try euro zone to grow by 2.1 per­cent this year, slower than the 2.4 per­cent recorded in 2017, and by 2.0 per­cent in 2019. tm­

The Com­mis­sion pre­dicted then that Italy, whose gov­ern­ment is now en­gaged in a war of words with Brus­sels over a 2019 bud­get draft that breaks EU rules, would record the low­est growth rate in Europe, matched only by Bri­tain.

With Brexit less than six months away, Bri­tain will re­lease its own third-quar­ter growth es­ti­mate on Fri­day, with a 0.4 per­cent ex­pan­sion the con­sen­sus in a Reuters poll.

Ser­vices PMIs for Bri­tain and other ma­jor economies early in the week will give fur­ther clues to the growth out­look. Sim­i­lar sur­veys in re­cent days have re­vealed slow­ing fac­tory ac­tiv­ity around the world.

In the United States, the main event is Nov. 6’s mid-term elec­tions, in which polls sug­gest the Demo­cratic Party will win con­trol of the House of Rep­re­sen­ta­tives af­ter two years of wield­ing no prac­ti­cal po­lit­i­cal power in Wash­ing­ton.

Pres­i­dent Don­ald Trump’s Re­pub­li­cans are likely to keep the Se­nate, but a hung Con­gress could ham­per his abil­ity to push through his tax and spend­ing plans.

“The loss of Con­gres­sional con­trol would make life in­creas­ingly dif­fi­cult for Pres­i­dent Trump and have ma­jor im­pli­ca­tions for pol­icy,” ING econ­o­mists said in a note.

If a dead­locked Con­gress makes it im­pos­si­ble for him to pass leg­is­la­tion, “Trump will likely fo­cus on ar­eas where ex­ec­u­tive pow­ers give him more lee­way to set the agenda, such as trade pol­icy”, they added. “With China ramp­ing up its fis­cal stim­u­lus, this hints that both sides will be ‘dig­ging in’, with lit­tle prospect of any mean­ing­ful eas­ing of ten­sions.”

The out­come of the trade dis­pute with China is the main un­cer­tainty hang­ing over the U.S. econ­omy. The two coun­tries have im­posed tar­iffs on hun­dreds of bil­lions of dol­lars of each other’s goods and Trump has threat­ened to put tar­iffs on the re­main­der of China’s $500 bil­lion-plus ex­ports to the United States if their dis­agree­ments can­not be re­solved.

“Here the out­come of the U.S. midterm elec­tions two days ahead of the Fed an­nounce­ment may also be scru­ti­nised for im­pli­ca­tions for trade talks and any con­se­quences of the out­come of the vote for the U.S. fis­cal back­drop,” In­vestec econ­o­mist Vic­to­ria Clarke wrote in a re­search note.

“From a mar­kets per­spec­tive, the Fed will also be eye­ing the wave of volatil­ity that has set in and what this means, if any­thing, for Fed tight­en­ing plans go­ing for­ward.”

In­di­ca­tions that trade ten­sions may be eas­ing pushed riskier as­sets sharply higher in fi­nan­cial mar­kets on Fri­day.

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