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German economy 'flirts with recession' as Q4 output stagnates – Financial Post

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BERLIN — The German economy stagnated in the fourth quarter due to weaker private consumption and state spending, data showed on Friday, renewing fears of a recession just as Chancellor Angela Merkel’s conservatives are preoccupied with a search for a new leader.

Europe’s biggest economy has been losing momentum as its manufacturers linger in a recession prompted by a reduction in exports while its automotive sector faces disruption from an expensive shift to electric cars.

Private consumption and state spending have been providing growth impetus and, if those two sectors continue to weaken this year, the risk of recession will rise.

“We think the economy will continue to flirt with recession in the first half of this year,” Andrew Kenningham of Capital Economics wrote in a note.

One bright spot from the preliminary data was an upward revision in the third-quarter growth figure to 0.2% from a previously reported 0.1%.

The Federal Statistics Office said investments in the construction sector grew in the fourth quarter, while spending on machinery and equipment declined considerably compared with the July-to-September period. Exports also weakened in the final three months of last year, it said.

Merkel’s government has resisted calls for a fiscal stimulus to put the economy firmly back on a growth path.

Those calls will grow louder if the economy fails to rebound, a likely scenario given that manufacturers are expected to face headwinds from the economic impact of the coronavirus outbreak in China.

But Merkel’s government is unlikely to loosen the purse strings. Her conservative party is in crisis after an eastern branch voted with the far right to elect a state governor, forcing the leader of her Christian Democrats (CDU) to abandon her ambitions to succeed the chancellor.

POLITICAL CRISIS

Annegret Kramp-Karrenbauer, who after the scandal said she would quit as CDU leader, is searching for a successor to lead the conservatives into the next election, due in October 2021.

Both Merkel’s conservatives and their Social Democrat (SPD) coalition partners are likely to suffer losses in a national election. SPD Finance Minister Olaf Scholz has dashed hopes of a massive stimulus by sticking to Germany’s policy of no new debt.

The crisis in the conservative party makes it even less likely that the government will take drastic fiscal measures to lift the economy.

Kenningham said the coronavirus, which is impacting both the global supply chain and demand from China, could result in weaker German growth in the first quarter of this year.

The outlook for the German economy is also darkened by uncertainties linked to Britain’s Jan. 31 exit from the European Union as well as a threat by U.S. President Donald Trump to impose higher tariffs on car imports from Europe.

Germany’s DIHK Chambers of Industry and Commerce said the quarterly stagnation should be a wake-up call for the government to increase investments and cut corporate taxes.

“Now is the time for politicians in this country to courageously do its economic homework,” said DIHK Managing Director Martin Wansleben. “Businesses urgently need relief signals: the fast implementation of investment projects and tax cuts should be high up on the government’s agenda.”

On the year, gross domestic product in Germany expanded by 0.4% from October through December after a 0.6% expansion in the previous three months, seasonally adjusted figures from the Federal Statistics Office showed.

Analysts polled by Reuters had expected a 0.1% expansion quarter-on-quarter and a 0.4% expansion year-on-year in seasonally adjusted terms. (Writing by Joseph Nasr Editing by Michelle Martin/Mark Heinrich)

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How Fast Can China's Economy Bounce Back from Virus Lockdown? – Financial Post

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(Bloomberg) — The biggest question for the global economy right now is how quickly China can get back to anything like normal operations while it’s battling the coronavirus outbreak that has killed almost 1,900 people and sickened tens of thousands.

Government controls and people’s fears to go outside have decimated spending for businesses from local noodle joints and Starbucks stores to Alibaba delivery men. Meantime, many factories are still not working due to a lack of staff, with workers trapped in their hometowns or spending two weeks in quarantine.

China’s economy was likely running at just 40%-50% capacity last week, according to a Bloomberg Economics report. The following data track how much of the world’s second-largest economy remains out of action:

Human Movement

About the same number of trips by planes, trains, automobiles and boats was taken in the run up to the Lunar New Year this year compared to last year, but the fall off since the first day of the Year of the Rat on Jan. 25 has been stark. On average, there’s only about 20% as many trips being taken each day, meaning millions of people still haven’t traveled back to work. And with long-distance buses only allowed to operate at 50% capacity to reduce the risks of viral transmission, that backlog will take a long time to clear.

Industrial Demand

Although some companies, especially large state-owned industrial firms and those making medical equipment, have ramped up output, demand for electricity is still well below where it should be at this time of year. Along with anecdotal reporting from across China’s vast east-coast manufacturing heartland, the power numbers suggest much of the nation’s industrial capacity remains idle.

Emissions of nitrogen dioxide in the week after the holiday were 36% below where they were at the same point after the new year break in 2019, according to the Centre for Research on Energy and Clean Air, which cited satellite data. A slowdown of 25%-50% across industrial sectors such as oil refining, coal-fired power generation and steel production contributed to the drop, according to the independent research organization.

A survey of 109 American manufacturing companies in and around Shanghai showed that although almost 70% were operating last week and more than 90% expected to be back by this week, 78% of firms said they didn’t have sufficient staff to run a full production line.

Consumption

Alibaba Group Holding Ltd, the first major Chinese technology corporation to report results since the epidemic emerged in January, said the virus is undermining production and has changed buying patterns, with consumers pulling back on discretionary spending, including travel and restaurants.

That drop in discretionary spending can be seen clearly in the plunge in box office revenue this Lunar New Year.

Even if people do want to spend, many shops are shut, and online and offline retailers are facing logistical problems to supply customers. That situation may continue until the virus is contained, people are back at work and getting paid, and they feel confident to spend again.

Note: Economists at Australia and New Zealand Banking Group, Nomura Holdings and Goldman Sachs Group are among those that have referred to some of these indicators in recent research. Bloomberg News will update this item as the situation continues to involve, adding data as it becomes available.

Bloomberg.com

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Rand falls: Moody’s warns investors about South Africa's economy – Aljazeera.com

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South Africa’s rand weakened and bond yields rose after Moody’s Investors Service lowered its forecasts for economic growth, raising the risk the country may lose its last investment-level credit rating.

The rand declined as much as 0.7% to trade above 15 per dollar for the first time in a week. Yields on benchmark 2030 government bonds rose four basis points to 8.9%.

Moody’s, which is scheduled to review South Africa’s Baa3 credit rating in March, said the country’s lackluster economic performance was due to domestic challenges rather than external factors such as the coronavirus. A downgrade by Moody’s would see South Africa lose its place in investment-grade indexes, sparking outflows from its bond and stock markets.

South Africa Economy

“Markets are betting that this could be a precursor to a downgrade into junk at the March review, which follows next week’s budget,” said Christopher Shiells, an analyst at Informa Global markets in London. “However, the Treasury may be able to buy itself more time with a statement that outlines credible steps toward fiscal and general economic reform.”

Recent economic indicators suggest that industrial activity in South Africa remains weak amid low business and consumer confidence, while recurring power outages have weighed on manufacturing and mining output, Moody’s said in a report. The company lowered its forecast for gross domestic product growth to 0.7% in 2020, from 1%, and predicts expansion of just 0.9% in 2021.

“Slow growth of economic activity is hampering the rate of jobs creation,” Moody’s said. “Our sub-1% projections reflect our view that the pace of economic activity will remain subdued, well below the country’s potential, over our forecast horizon.”

Tight Policy

South Africa’s relatively high real interest rates are bolstering the rand while constraining economic growth, Moody’s said. While the central bank reduced its policy rate by 25 basis points in January, the real rate, which adjusts for inflation, remained above 2%, higher than the GDP growth rate.

“It’s not a huge surprise,” said Paul McNamara, a fund manager at GAM Investment Management in London. For South Africa, “it’s a long death march rather than anything more spectacular. We’re reluctant to own a lot of rand, but the bonds look priced for a lot of bad news already.”

While the country may avoid a credit downgrade in March, much hinges on the government’s commitment to curb spending and consolidate debt. That would require capping the public-service wage bill in the face of opposition from labor unions.

“A downgrade will happen anyway for lack of reform reasons rather than what forecast numbers are,” said Peter Attard Montalto, head of capital-markets research at Intellidex in London.

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Brazil says prolonged coronavirus outbreak would negatively affect economy – Financial Post

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BRASILIA — Brazilian Economic Policy Secretary Adolfo Sachsida said on Monday that a prolonged coronavirus outbreak could affect Latin America’s largest economy if commodities prices remain low for a long time.

Sachsida added that the government did not see a reason to reduce its GDP growth projection for 2020 from 2.4%, at a time when several economists have slashed forecasts.

(Reporting by Marcela Ayres; Editing by Peter Cooney)

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