Ger­man, French paths diverge

Growth dif­fers in eu­ro­zone’s top economies

Kuwait Times - - BUSINESS -

PARIS:

Growth paths in top eu­ro­zone economies Ger­many and France are headed in dif­fer­ent di­rec­tions, cen­tral bank data showed yes­ter­day, rais­ing the prospect of ten­sion be­tween the two pow­er­houses. France’s cen­tral bank yes­ter­day trimmed its growth fore­casts for 2016 to 2018 cit­ing a wors­en­ing of the global econ­omy and Brexit, while Ger­many’s Bun­des­bank lifted its out­look. The di­verg­ing pro­jec­tions in the eu­ro­zone’s two top economies came a day af­ter the Euro­pean Cen­tral Bank ex­tended mea­sures to un­der­pin the bloc’s econ­omy as it grap­ples with po­lit­i­cal un­cer­tain­ties.

Ger­many and neigh­bor­ing France both hold crunch elec­tions in 2017. The EU must also ne­go­ti­ate with Bri­tain on its loom­ing exit, as well as nav­i­gate Italy’s fu­ture af­ter the res­ig­na­tion of Ital­ian Prime Min­is­ter Mat­teo Renzi. Re­vis­ing its GDP growth fore­casts down, the Bank of France said in a state­ment that it was “mainly due to the de­te­ri­o­ra­tion in the in­ter­na­tional en­vi­ron­ment”.

No wrig­gle room

“The pro­jec­tion is thus par­tic­u­larly af­fected by less fa­vor­able for­eign de­mand prospects.., no­tably as a re­sult of the im­pact of Brexit on the UK econ­omy and of its dis­sem­i­na­tion to the euro area economies.” The French cen­tral bank re­vised its 2016 and 2017 growth fore­cast down to 1.3 per­cent, hav­ing pre­vi­ously ex­pected growth of 1.4 per­cent this year and 1.5 per­cent next year. It also pre­dicted growth of 1.4 per­cent in 2018, down from its pre­vi­ous figure of 1.6 per­cent.

ECB board mem­ber Benoit Coeure, a French­man, warned presidential con­tenders in next year’s elec­tions not to ex­pect any fi­nan­cial wrig­gle room. Can­di­dates should not ex­pect to find on win­ning “a kitty or bud­getary mar­gins of maneuver that they’re go­ing to be able to spend”, Coeure said on Europe 1 ra­dio. “These mar­gins of maneuver don’t ex­ist and there’s a risk of a rise in in­ter­est rates,” he said. And he pointed out that growth in France would be weaker than in the rest of the eu­ro­zone. “France is lag­ging be­hind in terms of growth,” he added.

IHS Markit econ­o­mist Howard Archer said he saw lower growth rates for French GDP growth this year and next. “We sus­pect that po­lit­i­cal un­cer­tainty will take an ap­pre­cia­ble toll on French eco­nomic ac­tiv­ity in the first half of the year. Mean­while, French struc­tural prob­lems re­main a con­cern,” he said in written com­ments. Michael Hew­son, of CMC Mar­kets, said the figures high­lighted the chal­lenges for Francois Hol­lande’s suc­ces­sor and “any re­luc­tance to look at struc­tural re­forms in the com­ing months is only likely to heighten ten­sion be­tween Ber­lin and Paris”.

‘Sound up­ward path’

Mean­while Euro­pean eco­nomic pow­er­house Ger­many is “on a sound up­ward path” for faster-than-ex­pected growth in 2016 and 2017, its cen­tral bank said yes­ter­day, but re­mains at risk from Don­ald Trump and Brexit. The coun­try’s “main driver is buoy­ant do­mes­tic de­mand, which is be­ing bol­stered by the favourable sit­u­a­tion in the labour mar­ket and by rising house­hold in­come,” Bun­des­bank pres­i­dent Jens Wei­d­mann said in a state­ment ac­com­pa­ny­ing the semi-an­nual re­port. The econ­omy should ex­pand by 1.8 per­cent in both 2016 and 2017, the bank’s fore­cast­ers pre­dict, up­ping their pre­vi­ous fore­casts of 1.7 per­cent growth this year and 1.4 per­cent next year. But look­ing to the wider world, the economists warn that “risks are tilted to the down­side” in the years ahead, with po­ten­tial dan­ger from a slow­down in China, Bri­tain’s exit from the EU and un­cer­tain eco­nomic pol­icy un­der US Pres­i­dent-elect Don­ald Trump.

Bri­tain voted on June 23 to leave the EU, and Prime Min­is­ter Theresa May has promised to trig­ger the two-year di­vorce process at the end of March. ECB chief Mario Draghi on Mon­day high­lighted the risks which the ref­er­en­dum re­sult poses for Euro­pean economies. “Look­ing at the re­cent events, it is quite clear that geopo­lit­i­cal un­cer­tainty has be­come the ma­jor source of un­cer­tainty for the months to come,” he said. In­creased en­ergy prices in fu­ture are also ex­pected to cut the amount con­sumers have in their pock­ets to spend in both Ger­many and France, both cen­tral banks said. — AFP

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