The U.S. economy is on track to grow at a 2.4 percent annualized rate in the third quarter, the Atlanta Federal Reserve’s GDP Now forecast model showed on Friday, following the latest data on inventories, trade and consumer spending this week.
That is lower than the 2.8 percent growth for the third quarter estimated on Sept. 28, the Atlanta Fed said on its website.
The Atlanta Fed said its forecast of third-quarter real consumer spending growth fell from 3.0 percent to 2.7 percent, in the wake of Friday’s personal income and spending data for August.
Its forecast of the contribution of inventory investment to third-quarter growth fell from 0.60 percentage point to 0.26 percentage point, while its forecast of the contribution from net exports increased from -0.13 percentage point to 0.13 percentage point.
Source: Reuters (Reporting by Richard Leong; Editing by Bernadette Baum)
Consumer spending leveled off in August, a sign of caution among households amid lackluster economic growth.
Personal consumption, which measures how much Americans spent on everything from new cars to nursery schools, was unchanged in August from a month earlier, the Commerce Department said on Friday. That was the weakest reading since March.
Incomes rose 0.2%, the slowest growth since February.
Economists surveyed by The Wall Street Journal had expected personal spending to rise 0.1% and income to increase 0.2% in August.
Consumers, buoyed by steady job growth and slowly rising wages, were the main driver of economic growth in the first half of 2016. During the second quarter of the year, gains for personal spending more than outweighed the drag from falling business investment, a slowdown in government outlays and weakness in home construction and remodeling.
Economists and policymakers expect consumers to remain a key support into the final half of the year. Separate surveys have shown confidence remains high.
But the latest figures suggest some caution and hint at a slowdown in purchases of autos and other big-ticket items–spending on durable goods was down 1.3% from a month earlier.
Americans also saved a little more. The personal saving rate rose to 5.7% in August from 5.6% in July.
The personal consumption expenditures price index, the Federal Reserve’s preferred inflation measure, rose only 0.1% in August from the prior month. From a year earlier, the index was up 1.0%.
Inflation has fallen short of the Fed’s 2% target for more than four years. Most recently, it’s been held down by low oil and food prices.
So-called core prices, which exclude the volatile categories of food and energy, rose 0.2% from the prior month and were up 1.7% from a year earlier. The year-over-year reading was the strongest since February.
Fed officials are watching key metrics such as household spending, inflation and hiring as they weigh another move on the central bank’s benchmark interest rate.
Fed Chairwoman Janet Yellen earlier this week said there is no fixed timetable to raise rates though if the economy continues along its current path such a step could come later this year.
When adjusting for inflation, Monday’s report showed consumer spending fell 0.1% in August from the prior month. Inflation-adjusted disposable personal income–income after taxes–was up 0.1%.
Since the global financial crisis of 2008, monetary policy has borne much of the burden of sustaining aggregate demand, boosting growth, and preventing deflation in developed economies. Fiscal policy, for its part, was constrained by large budget deficits and rising stocks of public debt, with many countries even implementing austerity to ensure debt sustainability. Eight years later, it is time to pass the baton.
As the only game in town when it came to economic stimulus, central banks were driven to adopt increasingly unconventional monetary policies. They began by cutting interest rates to zero, and later introduced forward guidance, committing to keep policy rates at zero for a protracted period.
In rapid succession, advanced-country central banks also launched quantitative easing (QE), purchasing massive volumes of long-term government securities to reduce their yields. They also initiated credit easing, or purchases of private assets to reduce the costs of private-sector borrowing. Most recently, some monetary authorities — including the European Central Bank, the Bank of Japan, and several other European central banks — have taken interest rates negative.
While these policies boosted asset prices and economic growth, while preventing deflation, they are reaching their limits. In fact, negative policy rates may hurt bank profitability and thus banks’ willingness to extend credit. As for QE, central banks may simply run out of government bonds to buy.
Yet most economies are far from where they need to be. If below-trend growth continues, monetary policy may well lack the tools to address it, particularly if tail risks — economic, financial, political, or geopolitical — also undermine recovery. If banks are driven, for any reason, to reduce lending to the private sector, monetary policy may become less effective, ineffective, or even counter-productive.
In such a context, fiscal policy would be the only effective macroeconomic-policy tool left, and thus would have to assume much more responsibility for countering recessionary pressures. But there is no need to wait until central banks have run out of ammunition. We should begin activating fiscal policy now, for several reasons.
For starters, thanks to painful austerity, deficits and debts have fallen, meaning that most advanced economies now have some fiscal space to boost demand. Moreover, central banks’ near-zero policy rates and effective monetization of debt by way of QE would enhance the impact of fiscal policy on aggregate demand. And long-term government bond yields are at an historic low, enabling governments to spend more or reduce taxes while financing the deficit cheaply.
Finally, most advanced economies need to repair or replace crumbling infrastructure, a form of investment with higher returns than government bonds, especially today, when bond yields are extremely low. Public infrastructure not only increases aggregate demand; it also increases aggregate supply, as it supports private-sector productivity and efficiency.
The good news is that the advanced economies of the G-7 seem poised to begin — or perhaps have already begun — to rely more on fiscal policy to bolster sagging economic growth, even as they maintain the rhetoric of austerity.
In Canada, Prime Minister Justin Trudeau’s administration has announced a plan to boost public investment. And Japanese Prime Minister Shinzo Abe has decided to postpone a risky consumption-tax hike planned for next year, while also announcing supplementary budgets to increase spending and boost the household sector’s purchasing power.
In the United Kingdom, the new government, led by Prime Minister Theresa May, has dropped the target of eliminating the deficit by the end of the decade. In the wake of the Brexit vote, May’s government has designed expansionary fiscal policies aimed at spurring growth and improving economic conditions for cities, regions, and groups left behind in the last decade.
Even in the eurozone, there is some movement. Germany will spend more on refugees, defense, security, and infrastructure, while reducing taxes moderately. And, with the European Commission showing more flexibility on targets and ceilings, the rest of the eurozone may also be able to use fiscal policy more effectively. If fully implemented, the so-called Juncker Plan, named for European Commission President Jean-Claude Juncker, will boost public investment throughout the European Union.
As for the United States, there will be some stimulus, regardless of whether Hillary Clinton or Donald Trump wins the presidential election. Both candidates favor more infrastructure spending, more military spending, loosening limits on civilian spending, and corporate-tax reform. Trump also has a tax-reduction plan that would not be revenue-neutral, and thus would expand the budget deficit (though the effect on demand would likely be small, given the concentration of benefits at the very top of the income distribution).
The fiscal stimulus that will result from these uncoordinated G-7 policies will likely be very modest — at best, 0.5% of gross domestic product of additional stimulus per year for a few years. This means that more stimulus, particularly spending on public infrastructure, will probably be warranted. Nonetheless, the measures undertaken or contemplated so far already represent a step in the right direction.
European Union governments are refusing to grant the U.K. any leeway on the link between immigration and trade as it prepares to leave the bloc, raising the likelihood of a “hard Brexit.”
Almost 100 days since a referendum signaled the end of Britain’s four decades of EU membership, a Bloomberg News analysis has identified a hardening of positions with even the U.K.’s traditional allies such as Ireland insisting it cannot “cherry pick” in the looming divorce talks.
The U.K. “cannot have the advantages of the European Union without carrying out the obligations,” Irish Finance Minister Michael Noonan said in an interview with Bloomberg Television.
Such intransigence may mean Prime Minister Theresa May ends up favoring a clean break from the EU to secure her goal of tougher immigration controls even if that costs the country access to the single market, a scenario dreaded by bankers and business executives.
“The dynamics within the government give the upper hand at the moment to the hard Brexit supporters,” former Foreign Secretary David Miliband told Bloomberg TV.
The analysis is based on interviews and public comments from officials in all 28 EU governments.
Among the other demands listed is that Britain must have “inferior” terms to what it currently enjoys as an EU member for fear that too many concessions will fan calls to leave from elsewhere in the region. Some want the U.K. to keep contributing to the EU budget in return for what benefits it does secure.
Central eastern European countries are particularly animated on ensuring that the rights of their citizens to work in the U.K. are protected, with some threatening to veto any Brexit deal that doesn’t allow for that. Others are worried the U.K. will seek to slash corporate taxes.
Prime Minister Theresa May declares “Brexit means Brexit,” while arguing that publicly detailing Britain’s negotiating position would risk undermining her in the talks. She has said the new relationship will be bespoke and “will include control of the movement of people coming to the U.K.,” a signal that reducing immigration is more of a priority for her than ensuring access to the single market. She has ruled out an Australian-style points system for controlling labor flows.
On commerce, May simply says she wants the “right deal for trade in goods and services.” Brexit Secretary David Davis went further in saying it was “improbable” that the U.K. could reduce the flow of EU workers and keep current trade links, a comment that earned him a rebuke from May. Davis and Trade Secretary Liam Fox have indicated they would like to withdraw from the region’s customs union to enable deals to be struck with other countries, although May hasn’t been drawn on that.
Chancellor of the Exchequer Philip Hammond is ready to accept the U.K. will have to give up single market membership to restrict immigration, two officials said this month. As for when May will trigger the formal exit process, she has said nothing beyond stating that won’t happen this year. Foreign Secretary Boris Johnson told Sky News last week to expect talks to begin early in 2017 and that they may not last two years, insights which also drew a slapdown from May’s office. May has also said she hopes to grant rights to citizens already in the U.K. so long as Britons elsewhere receive the same treatment.
Austria is pushing for more meetings to prepare for the Brexit negotiations, arguing they can’t be left to the leaders of the large economies. Finance Minister Hans Joerg Schelling says that “it’s worrisome” that May has signaled she won’t honor the EU’s “four fundamental freedoms,” adding that the U.K. can’t cherry-pick the benefits of membership.
Belgium is interested in shoring up the push for closer integration within the EU, at different speeds if necessary, while minimizing disruption in trade with the U.K. Brussels is hoping to attract companies from London that want to maintain a presence in the bloc after Brexit. The government also will be watching closely progress of Brexit-fueled populist sentiment, with a special eye on the nation’s northern region of Flanders.
Like many other eastern European countries, Bulgaria will seek to protect its 70,000 workers and students in the U.K. It is also worried that Brexit may divide the EU into the core and periphery. It is possible the country will seek guarantees it will get sufficient EU aid in case of a new migrant wave from Turkey.
Croatia, the newest EU member, rejects the possibility of cherry-picking elements such as access to the single market, without participating in all four freedoms, especially the freedom of movement.
Cyprus would like a “smooth and painless” departure of the U.K., according to government spokesman Nikos Christodoulides. “The EU is a set menu, not an a la carte arrangement, and the benefits from membership should always exceed those of non-membership,” he said, calling on the U.K. to state its aims with “sufficient clarity.”
“There is no way whatsoever for the U.K. to have the cake and eat it,” Czech State Secretary for EU Affairs Tomas Prouza said in an interview. “For us, it’s the four freedoms or no freedoms,” he said. “We would be very much against any compromise on the free movement of labor.” If the U.K. wants access to EU markets and for its banks to be able to easily sell their services in the bloc, then it needs to offer equal treatment for Europeans coming to the U.K., Prouza said.
Denmark, which has previously expressed sympathy for Britain’s view that there should be a crackdown on benefits to EU migrants, has since warned that remaining member states should not have to pay more into the EU budget once the U.K. leaves. That concern extends to the EU’s rebate system, which was instituted after Margaret Thatcher’s famous 1984 battle cry “we are simply asking to have our own money back,” and which now affects several member states, including Denmark.
The rest of the EU has “no time to wait” and must “overcome the shock of Brexit and move on together,” Prime Minister Taavi Roivas said on Sept. 9. “We need to remember that war is continuing both in Europe and its close vicinity and we need to stick together in these difficult times.” For Estonia the most important topics are safety and security as well as the internal market, he said. “We need to expand our opportunities with the closest partners by means of free-trade agreements.”
Finland cautions against British businesses being granted any unfair advantages, with Finnish Economy Minister Olli Rehn warning Britain over any attempts to initiate a corporate-tax arms race.
France continues to argue that if the U.K. wants to have access to the single market and retain “passporting” rights for banks, it will have to fully apply the rules of freedom of movement. Its bilateral concerns remain fishery territories and that status of French residents in the U.K. The French government also wants the U.K. to help handle regional migrants.
Chancellor Angela Merkel’s government hasn’t budged from its position that any U.K. access to the single market when outside of the EU would require the preservation of the so-called four freedoms, including the freedom for EU citizens to work in the U.K. Outside the official line, some members of Merkel’s coalition say Germany’s goal of maintaining close ties with the U.K. requires flexibility by the EU. “We should think out of the box, not only black or white,” Norbert Roettgen, head of parliament’s Foreign Affairs Committee, said in a Bloomberg interview on Sept. 8.
Prime Minister Alexis Tspiras has said little on Brexit other than to complain about the amount of EU attention devoted to Europe’s northwest when its southeastern corner is in such need. Europe must “stop walking in the wrong direction,” he said.
Hungary, along with other central European allies, supports vetting any Brexit deal that limits the movement of labor to the U.K., Prime Minister Viktor Orban told news website Origo on Sept. 22. At the same time, the EU should be “fair” to Britain in the negotiations and should focus on protecting trade, Janos Lazar, minister in charge of the Hungarian prime minister’s office, said on Sept. 22.
Ireland wants the U.K. to have as much access to the single market as possible, though it also wants Britain to allow free movement of EU citizens. In addition, Dublin is determined to avoid the reintroduction of any hard border with the south and north of Ireland.
“The best possible position for Ireland is that the position after the settlement will be very close to what the situation was before,” Finance Minister Michael Noonan told Bloomberg TV on Sept. 23. “But they cannot have the advantages of the European Union without carrying out the obligations,” he said.
Prime Minister Matteo Renzi doesn’t think it possible for the U.K. to reach a deal with both access to the single market and controls on immigration “because this is against European rules.” He told reporters on a September visit to New York: “For me, it is obvious the two things cannot co-exist.’’ Still, Foreign Minister Paolo Gentiloni says Europe has “every interest” in maintaining economic and foreign relations with the U.K. and “we are flexible up to a certain point.”
Latvia wants the status to remain the same for its nationals in the U.K, and for British nationals in the EU. It also wants the U.K. to remain close to the EU and continue to participate in the foreign policy and security community, Latvian Foreign Minister Edgars Rinkevics said in an interview with Bloomberg Television on Sept. 22.
Lithuania’s red lines for the U.K. to stay in common EU market are free movement of labor and contributions to bloc’s budget, Deputy Foreign Minister Raimundas Karoblis said. “Our interests are immigration and EU budget contributions — they should pay if they stay in the common market,” he said on Sept. 27. “If the British accept the free movement of people, theoretically we could let them intervene if there is too big an influx of immigrants from the EU. However, this should be proportionate and temporary,” Karoblis said.
A hub for investment-fund administration, Luxembourg is most interested in continuing to do business with London and establishing closer ties with the City of London after Brexit. The Grand Duchy is among secondary European business centers making a pitch to businesses that want to secure access to the EU’s single market.
Maltese Prime Minister Joseph Muscat says any deal for the U.K. must be “inferior” to the benefits of membership. He wants the agreement “balanced and just for all sides.”
Dutch Prime Minister Mark Rutte said in Bratislava in September that the damage of the U.K. leaving EU must be “limited as much as possible.’’ For Rutte, the U.K. is part of the EU as long as it doesn’t push the button to leave.
Poland, the biggest exporter of workers to the U.K., joined a chorus of voices from the EU’s eastern nations and signaled it may veto any Brexit agreement that would erode the rights of its citizens to live and work throughout the bloc’s single market. Deputy Foreign Minister Minister Konrad Szymanski told Bloomberg that Poland won’t support a deal that isn’t “balanced” in terms of the four principles of the single market — the free movement of people, goods, capital and services.
“It’s clear that negotiations on a new relationship are being held under pressure of a veto,” Szymanski said, when asked about the possibility of Poland blocking a deal. “Negotiations are aimed at avoiding a veto, but we will not seek a compromise at any cost,” he said.
Portugal insists that continued access to the EU single market depends on accepting free movement of labor, Secretary of State for European Affairs Margarida Marques told Bloomberg in August. “The ‘red lines’ are well defined and there is a broad consensus at the European level,” she said. “In the scenario of a relationship in which the freedom of movement of people is restricted, that would mean no access to the internal market.”
Portuguese Prime Minister Antonio Costa tried to sound optimistic when speaking to reporters on Aug. 31. “The U.K. will always be a fundamental partner of the EU, whether it’s in or out,” Costa said. “I have a very optimistic view about how the rights of the Portuguese who currently reside in the U.K. will be defended,” he said.
Romanian leaders from the president on down say the U.K. should not have a privileged status in relation to the EU after Brexit, which is, from their point of view, an irreversible move which must occur within two years. For Romania, protecting the rights of its citizens working and living in the U.K. is of paramount importance and thus the country plans to have a “very active role” in negotiating the Brexit terms, President Klaus Iohannis said.
Romania has the second-largest community of citizens currently working in the U.K., after Poland. It’s also counting on an existing bilateral investment agreement with the U.K. to ensure than British companies continue their investments in Romania and that Romanian investors retain their ability to expand in the U.K., according to Deputy Finance Minister Enache Jiru.
Premier Robert Fico said his nation, current holder of the rotating EU presidency, will reject cherry picking by Britain. “All of the fundamental freedoms must be respected and that has been clear from the very first moment we learned of the result of the British referendum,” Fico said after a Sept. 16 Bratislava summit of the EU’s 27 leaders minus the U.K.
Brexit talks must prevent creation of “second-class citizens” from workers of other member states now residing in U.K., Fico said on Sept. 26. Fico has warned that he and other eastern European neighbors may veto any deal if the U.K. doesn’t offer rights to their citizens working in Britain.
Slovenia has echoed its neighbors in opposing cherry picking in the Brexit talks. The government also says it will pay “particular attention” to EU budget issues in the negotiations as it doesn’t want the region’s coffers to be affected.
Spain’s interest is dominated by the protection of more than 100,000 Spaniards living in the U.K. as well as making sure that the economic contribution of about 800,000 of British people living in Spain at least part of the year continues. Acting Spanish Foreign Minister Jose Manuel Garcia-Margallo said this month that he aims to win joint sovereignty over Gibraltar as part of the Brexit negotiations.
Sweden says single-market access entails freedom of movement for people. Minister for EU Affairs Ann Linde says that while her government wants to be “a very constructive voice” during Brexit discussions, the country’s relationship with the EU is more important.
Finland’s central bank cut on Thursday its forecast for economic growth in Europe for next year, citing impacts from Britain’s vote to leave the EU as well as weakened economic prospects in Italy.
The Bank of Finland slightly lifted its 2016 growth forecast for the EU22 countries — the euro zone, Britain, Sweden and Denmark — to 1.7 percent from a previous 1.6 percent, but cut it to 1.3 percent for 2017 and 1.6 percent for 2018 from 1.8 percent previously for both years.
“Europe’s growth will be dampened also by internal factors which are not linked to Brexit, such as deterioration of Italy’s growth outlook and problems in its bank sector,” the bank said.
It forecast inflation within the same group of countries to be 0.4 percent this year, 1.4 percent in 2017 and 1.5 percent in 2018.
“Improvements in economic prospects and the ongoing accommodative stance of monetary policy will gradually begin to boost inflation. However, longer-term inflation expectations remain muted, which is a worrying trend,” the bank said.
Source: Reuters (Reporting by Jussi Rosendahl; Editing by Toby Chopra)
Italy’s growth prospects may be on very shaky ground.
If Prime Minister Matteo Renzi falls after a constitutional referendum in early December without a budget in place, that puts the economy at risk of a slowdown in 2017, this week’s projections from the Rome-based Treasury show.
While the government targets growth of 1 percent, the forecast without the budget-law measures is for only 0.6 percent expansion. That would be even less than the pace Renzi’s administration expects for this year.
The premier has tied his future to the Dec. 4 referendum overhauling the Senate, and his downfall could jeopardize planned growth-friendly measures including a boost to the smallest pensions and a reduction in corporate taxes. The budget-law timing is crucial as it needs to be passed by year-end. Failing to do so would add to investors’ concerns about the economy and on how the nation will revive its lenders, loaded with 360 billion euros ($404 billion) of troubled loans.
“If the ’No’ wins in the referendum, you might end up having a political crisis on top of an economic slowdown and a banking mess that needs leadership,” said Bloomberg Intelligence economist Maxime Sbaihi. “Suddenly, stars could align for the worst.”
This week Italy cut its GDP forecast for 2016 to 0.8 percent growth, down from 1.2 percent estimated in April. The country’s recovery from its longest recession since World War II came to a halt in the second quarter when the economy stagnated. The unemployment rate was unchanged in August at 11.4 percent, while youth joblessness dropped slightly to 38.8 percent from 39.2 percent in July, statistics agency Istat said Friday.
Echoes of Italy’s difficulties are being felt as far away as Finland. That country’s central bank said the slowdown in the euro region’s third-biggest economy is a reason for major concern, comparable to the effects of the U.K. voters’ decision to leave the European Union.
“The growth of the euro area is also weakened by internal problems and problems not related to Brexit, like the weakened Italian growth outlook and problems in banking sector,” the central bank said in its economic bulletin on Thursday.
The European Central Bank has been holding U.S. dollar-providing operations since the weeks after the collapse of Lehman Brothers Inc., as part of its liquidity operations for European lending.
The totals drawn by banks from the operation have been relatively low for the past couple of years. That changed this week when 12 banks sought $6.348 billion in liquidity.
The total dollars sought was the most in four years. The number of bidders also jumped.
So what’s going on? With German banks under pressure this week as Deutsche Bank AG, the nation’s biggest lender, faces U.S. legal penalties, they might be viewed as the likely source of the increased demand.
However, there were no German bidders at the operation, according to a person familiar with the matter, who asked not to be named because the details of the operations are confidential. That suggests a possible squeeze on market liquidity may be a wider problem for banks in Europe.
A spokesman for the ECB declined to comment.
The operation does cover the end of quarter period, a typically volatile time. There was also a spike in operation size and number of bidders at the end of June, but that was far smaller.
Details of the next dollar operation will be published on the ECB website on Oct. 5
Germany’s central bank sees no need for a new global stimulus package like the one advocated by the International Monetary Fund, as it expects the world’s economy to continue to recover, Bundesbank board member Andreas Dombret said on Friday.
IMF calls for the world’s largest economies to embark on fresh stimulus have gone unheeded in Germany, where the central bank opposes further monetary easing and the government is reluctant to eat into its record budget surplus.
“We see no need for a global, coordinated package of monetary, fiscal and structural measures,” Dombret said ahead of the IMF’s annual meeting on Oct. 7-9.
“It is rather about the right policy mix, consistent with stability, in individual countries.”
Dombret added that fears of “secular stagnation”, that is persistently low economic growth, were overblown, even accounting for ageing populations in developed economies
“The danger of slipping into a secular stagnation is in our view overestimated,” Dombret said.
“A certain weakening of trend growth in developed economies is unavoidable against the background of demographic developments,” he added.
Source: Reuters (Reporting by Francesco Canepa; Editing by Alison Williams)
The Group of 20 (G20) summit in Hangzhou is important for global economic coordination by focusing on the right topics, a European economic think tank chief has said.
“The Hangzhou summit was an important summit. It put rightly emphasis on both sides of the economy, supply side and demand side,” Guntram Wolff, director of Bruegel, recently told Xinhua while commenting on the G20 summit held in the eastern Chinese city of Hangzhou earlier this month.
The world economy is facing new challenges eight years after the 2008 global financial crisis, with monetary policy everywhere basically at its limit, observed the head of the Brussels-based European and Global Economic Institute.
“We need significant structural reforms on the one hand, but on the other hand, we also need supportive macroeconomic policies that support demand,” Wolff said. “That combination makes sense.”
Among the key challenges, Wolff said inequality has become noticeably important for the whole world although there are different domestic troubles in every country among the G20 members.
This not only worries the developing and lower-income countries, but also troubles the advanced economies, including European countries and the United States.
Wages are “falling in many countries around the world, meaning that the percentage of national income that goes to ordinary working people has been falling,” Wolff said in the Xinhua interview when attending a meeting here on the G20 and global economic coordination.
He thought that the popular backlash seen currently in some parts of the Western world is very much related to the feeling that globalization has failed to benefit all but the top few percent of people, especially in the Western world.
“In the developed countries, you do not have growth any more, and the productivity growth is very low. If you’re of middle class in the United States, for example, you haven’t seen income increase for 30 years, and then there are increased tensions,” Wolff said.
In this regard, the G20 summit in Hangzhou set the right tone to address the inequality issue, including global coordination on corporate taxation around the world, he said.
Moreover, the summit emphasized inclusive growth, which is a “good concept,” the economist said.
Wolff believed that inclusive growth means not only fairer distribution of social wealth, but also equal access to opportunity, education and new jobs, among others.
“The concept of inclusive growth is much broader, which covers many dimensions,” he said.
Regarding global economic governance, “G20 is totally relevant and important,” Wolff said, adding that “as a forum, G20 represents the changing world economy and China has been playing an increasingly important role in this process.”
Wolff commended China for tackling the inequality challenge, saying “it has really lifted hundreds of millions of people out of poverty, which is a huge achievement.”
On China’s economy, Wolff said that “China’s growth rate is still quite high.”
However, he believed that the phase of growth largely dependent on increasing investment has to end in China.
“Ultimately, the growth of China would come from progress in technology and total productivity, labor productivity, better education system,” he said, while suggesting more balanced growth and a stronger service sector.
In his opinion, “there is a big transformation that China has to face and it can be managed.”
German inflation picked up in September to reach its highest level in 16 months and Spanish consumer prices rose for the first time since May 2014, positive signs for the European Central Bank that its ultra-loose monetary policy is working.
The ECB has unleashed unprecedented monetary stimulus in recent years to boost the economy and fight off the threat of deflation. It has cut interest rates aggressively to zero or less and pumped more than a trillion euros into the economy through asset purchases.
But with growth in the euro zone still moderate and inflation in the 19-member currency bloc barely above zero – well short of the ECB’s target of nearly 2 percent – the central bank’s critics say its monetary policy has reached its limits. Others say it should print even more money.
But Thursday’s number offered some respite for the policymakers.
“Hooray, the prices are rising! This might sound crazy but it fits. Because the price development shows that the risks of deflation have been averted for now,” KfW Bank economist Joerg Zeuner said.
The ECB has been concerned about a damaging deflationary spiral in the euro zone in which consumers delay purchases in expectation of lower prices, hitting economic growth.
Zeuner said he expected the German inflation rate — which is something of a key to euro zone inflation as a whole — to reach nearly 2 percent at the beginning of next year.
“Given a similar development in the euro zone, this will enable the ECB to aim for a smooth exit from its bond-buying programme in 2017,” he added.
German consumer prices, harmonised to compare with other European countries (HICP), rose by 0.5 percent on the year in September after an increase of 0.3 percent in August, the Federal Statistics Office said. This was the highest rate since May 2015 and in line with a Reuters consensus forecast.
On a non-harmonised basis, German inflation picked up to 0.7 percent on the year after 0.4 percent in August, it said.
Energy prices remained the main drag on the headline figure, but fell less sharply than in the previous months, a breakdown of the non-harmonized data showed. Costs for rents increased faster than in August while food inflation slowed.
The strong German inflation data came after Spanish EU-harmonised consumer prices rose by 0.1 percent year-on-year in September, the first increase since May 2014.
Spain’s national consumer price index rose by 0.3 percent in September on an annual basis, up from a 0.1 percent drop in August and the first time it has risen since July 2015, the National Statistics Institute (INE) said.
ING economist Geoffrey Minne called the Spanish inflation data “a sign that ECB policy might be working after all”.
But he added that overall euro zone inflation was still far away from the ECB’s target of nearly 2 percent. “In that regard ECB monetary policy is likely to remain easy for some time to come,” Minne said.
For the overall euro zone, economists polled by Reuters expect the inflation rate, due on Friday, to edge up to 0.4 percent in September after a rise of 0.2 percent in August. This would be the highest reading since October 2014.
In Berlin, leading economic institutes urged the ECB to wait and weigh the effects of its bond-buying programme before taking more expansionary steps. But they also added that the ECB should take more measures if inflationary pressures remained weak.
On Wednesday, European Central Bank President Mario Draghi rejected German criticism that sub-zero interest rates were impoverishing savers and straining top lender Deutsche Bank, saying its monetary policy was a necessity to get the euro zone back on the path to growth and revive inflation.
Questioned by lawmakers who say ECB policy has damaged the euro zone and fuelled the rise of right-wing populists, Draghi said Germans were actually net beneficiaries of the euro zone central bank’s easy stance and the nation’s bank troubles were actually due to poor efficiency.
Source: Reuters (By Michael Nienaber and Paul Day, Additional reporting by Joseph Nasr and Reinhard Becker in Berlin; Writing by Michael Nienaber Editing by Jeremy Gaunt.)
European Central Bank Governing Council member Ewald Nowotny said he expected Austria to resolve a crisis surrounding the “bad bank” Heta Asset Resolution.
Nowotny told Reuters he expected Austrian Finance Minister Hans Joerg Schelling to get the support of a necessary majority of creditors for a settlement offer related to Austria’s worst financial disaster in 60 years.
“It’s going in the right direction,” Nowotny told Reuters before an event hosted by the Friedrich Ebert Stiftung foundation. “I think Finance Minister Hans Joerg Schelling will get the needed majority. It’s like a band-wagon effect.”
Schelling last month said that he expected a two-thirds majority of creditors to accept a settlement that will make a bond buyback offer binding for all creditors.
Creditors have until Oct. 7 to respond, with answers expected to be made public on Oct. 10.
Source: Reuters (Reporting by Reinhard Becker, Writing by Andrea Shalal; Editing by Dominic Evans)
The European Union (EU) is experiencing a crisis and needs to regain credibility and public trust, the deputy finance minister of Chancellor Angela Merkel’s political party told CNBC.
“We are, without any doubt, within the worst times ever for the European Union,” Jens Spahn, deputy finance minister of the Christian Democratic Union (CDU), told CNBC on Wednesday. The CDU governs in Germany with its Bavarian sister party, the Christian Social Union (CSU).
Spahn noted the region’s migration crisis, attempts to combat terrorism and a lack of unified policy towards problems in the Middle East were among the issues that had divided the region.
“What we really do need now is that we can regain trust by showing that we can solve problems at a European level. The problems of securing our EU border when it comes to migration and refugees, that we work together on fighting terrorism or that we have a common neighborhood policy towards northern Africa and the Middle East,” he said.
“So far every member state has its own policy and we should do it together – then people will see that working together has an added value and that is what is needed now.”
On the economic front, Spahn said that the euro zone was lacking growth but stressed that the problems stemmed from a lack of reform at a national level.
“We do need more growth in Europe and in the world, without any growth there won’t be inflation and without inflation there won’t be rising interest rates, so we need growth. But the problem is that at big meetings of the IMF or G-20 we all agree in the declarations that we need to do structural reforms but back home in our countries and national states, we don’t do what is necessary – not in Germany nor in other countries,” he said.
“So we really do need these discussions in domestic politics here in Germany, in other countries, in the U.S. too on what kind of reforms we need, to build up an environment for more investments which will create growth. Central banks can’t do this, we have to do the structural reforms.”