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German economy likely to contract in fourth quarter, DIW says – The Guardian



BERLIN (Reuters) – The German economy probably shrank in the fourth quarter as export-oriented manufacturing continued to decline, the DIW economic institute said on Friday.

DIW said Europe’s largest economy probably contracted by 0.1% in the October-December period.

“We could at most hope for stagnation,” said DIW economist Claus Michelsen.

DIW’s forecast contrasted with a rosy estimate by the Ifo institute, which this week said Europe’s biggest economy probably expanded by 0.2% in the fourth quarter.

Manufacturing has been weakening since the start of the year, slowing a 10-year growth cycle. Consumption, state spending and construction have been cushioning the economy.

German manufacturers are coping with trade disputes and Brexit uncertainty. The car industry also faces a costly shift to electric vehicles and stricter emissions rules.

Economy Minister Peter Altamier said that increased clarity on Brexit has helped Germany avoid a recession.

Following Prime Minister Boris Johnson’s election victory, the British parliament will vote on his deal to leave the European Union on Friday. The bill should face little opposition.

Altmaier also told Der Spiegel magazine that he expects trade tensions between the United States and the EU to ease. Donald Trump and the European Commission have imposed tariffs on traded goods and the U.S. president has threatened to impose levies on European cars and car parts.

“I don’t think that the U.S. president has a big interest in having a trade war with Europe one year before the election,” Der Spiegel quoted Altmaier as saying.

DIW said that despite the gloom, German industry was showing signs of optimism.

“German companies are again looking positively into the future, especially when it comes to their international business,” said Michelsen.

The economy narrowly avoided recession in the third quarter, growing by 0.1% in the third quarter after contracting by 0.2% in the April-June period.

A strong labor market is expected to continue providing support for the economy. Data published on Friday showed that real wages rose by 1.9% in the third quarter compared with the same quarter in 2018 – the largest increase since early 2016.

(Reporting by Joseph Nasr, editing by Larry King)

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Impeachment will further obscure Trump's contested economic legacy –



President Donald Trump claimed to support the little guy against the elite.

But after four years in power, examination of Donald Trump’s economic record in reaching that goal has been set aside as the impeachment fight moves on to the Senate.

Just as a new report by a U.S. business group shows Trump’s trade battles with China alone led to major job losses, there is a danger that as factions take sides over whether he did or did not incite an insurrection, the president’s economic successes and failures will be obscured.

There are still plenty in the U.S. financial sector who celebrate the tax cuts and low interest rates that propelled markets to new heights. But markets are not necessarily a good proxy for economic success, something repeatedly pointed out by Janet Yellen when she chaired the U.S. Federal Reserve.

“The stock market isn’t the economy,” said Yellen, who U.S. president-elect Joe Biden has said he will nominate as the first woman treasury secretary, in 2020. “The economy is production and jobs, and there are shortfalls in virtually every sector.”

That flawed relationship has certainly shown itself to be true over the past year as the COVID-19 pandemic overwhelmed the U.S. economy. Growth figures for the year, out later this month, are expected by economists to show U.S. GDP shrank by about three per cent even while the stock market finished the year at record highs.

Economic champions?

There is little doubt that Trump and his administration staked out their turf as champions of the economy. But some of the policies that they supported, including down-playing the impact of the virus to allow the economy to remain open, proved to be short-sighted.

While it is impossible to prove, many critics have said earlier acceptance of the pandemic’s dangers could have reduced the devastating effects of the pandemic not just on the record-setting death toll in the U.S., but on the economy as well. 

One of the great successes of the Trump administration was on job growth. Despite their opponents’ objections to the post-Reagan conservative strategy of letting the economy rip at the expense of government planning and spending, unemployment rates repeatedly fell to new record lows.

Just before the pandemic came and swept it all away, wage rates for the lowest-paid workers were beginning to creep up. Yellen’s successor at the Fed, Jerome Powell, has said that as the poor suffered the most from COVID-19 job losses, it could be years before wages would start to rise again.

People line up in Kentucky in June 2020 to get help with COVID-19 jobless claims. Before the pandemic a major Trump success was low unemployment and early signs of rising wages. (Bryan Woolston/Reuters)

Failing to plan for the future is a good economic strategy if nothing goes wrong, but the arrival of COVID-19 was an example of why that is not a foolproof approach. Shortages of personal protective equipment, the weakening of the once-mighty U.S. Centers for Disease Control and Prevention, and failure to build a promised working replacement for Obamacare likely made the economic impact of the pandemic worse.

In this regard the U.S. was not alone. Canada had also let its guard down, including its failed reorganization of the country’s Global Public Health Intelligence Network, which has previously led the world as an early warning system for disease outbreaks.

Aversion to planning and failure to take expert advice can lead to short term advantages, like keeping costs down. But in areas such as climate change planning, many otherwise conservative business leaders have made the case for a long term economic benefit in leading the way on green measures. Now, under Biden, U.S. industry will be playing catch-up.

WATCH | Even pre-pandemic, there were holes in the U.S. economy (Feb. 2020):

U.S. President Donald Trump often points to the rising stock market when he claims responsibility for economic strength, but he doesn’t mention a lack of job growth or struggling sectors including manufacturing and coal. 2:19

Economics by populist appeal

Perhaps one of the biggest flaws in Trump’s economic strategy was that he chose policy based on how it would appeal to the ideology of his populist base. Sometimes things that appeal to a large number of people are simply wrong. 

Immigration is one example. Blocking the arrival of highly skilled foreigners may sound like it is saving jobs for U.S. citizens, but the policy that helped Canada grab some of those people instead, is widely seen by labour economists as having the opposite effect.

Protectionism is another example. Trump’s attacks on Canada as a trade cheat may have played well to the Make America Great Again audience, but they were almost universally opposed by economists and U.S. businesses interested in making the economy stronger.

Tear gas is released into the crowd at the U.S. Capitol Building in Washington, D.C., on Jan. 6. An economy even more divided between rich and poor may actually hurt Trump supporters even while it inflames their political outrage with the current system. (Shannon Stapleton/Reuters)

Trump’s hard line on Canada and the renegotiation of NAFTA may have gained the U.S. some small advantages in the short term but also lost as much in good will. Wins and losses are hard to calculate, but last week Reuters reported on a study by U.S. businesses that showed Trump’s trade war with China, rather than bringing employment home, cost the economy 245,000 jobs.

Perhaps the biggest flaw in Trump’s economic strategy is the one that he celebrated as his biggest success: his $1.5-trillion overhaul of the U.S. tax system. While claiming to speak for poorer working Americans, it has been widely recorded that Trump’s financial support came from the rich who benefited from tax cuts and rising markets.

Especially after the impact of COVID-19, those measures have left the U.S. more starkly divided between rich and poor than when Trump took office.

Meanwhile, some of those who supported and benefited from Trump’s economic policy, including Senate Majority Leader Mitch McConnell, have now added their voices to the chorus criticizing the president.

Now, rather than taking a hard look at Trump’s economic policy, what went right and what went wrong, the impeachment may actually create even greater division.

Whether the Senate ultimately votes to convict Trump or not, the rising temperature of political outrage will make sober analysis next to impossible, with the danger of leaving the Trump presidency’s net benefit for the U.S. economy poorly examined.

Follow Don Pittis on Twitter @don_pittis

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Economy Spiraling, Vexed Central Banks, Rich Get Richer: Eco Day – Bloomberg



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Economy Spiraling, Vexed Central Banks, Rich Get Richer: Eco Day  Bloomberg

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Asia shares pare losses as China economy rebounds – Cape Breton Post



By Wayne Cole

SYDNEY (Reuters) – Asian shares pared early losses on Monday as data confirmed China’s economy had bounced back last quarter as factory output jumped, helping partially offset recent disappointing news on U.S. consumer spending.

Chinese blue chips gained 0.8% after the economy was reported to have grown 6.5% in the fourth quarter, on a year earlier, topping forecasts of 6.1%.

Industrial production for December also beat estimates, though retail sales missed the mark.

“Despite the latest dip in retail sales, we see plenty of upside to consumption as households run down the excess savings they accumulated last year,” said Julian Evans-Pritchard, senior China economist at Capital economics.

“Meanwhile, the tailwinds from last year’s stimulus should keep industry and construction strong for a while longer.”

MSCI’s broadest index of Asia-Pacific shares outside Japan trimmed losses and were off 0.3%, having hit a string of record peaks in recent weeks. Japan’s Nikkei slipped 0.8% and away from a 30-year high.

E-Mini futures for the S&P 500 dipped 0.2%, though Wall Street will be closed on Monday for a holiday. EUROSTOXX 50 futures eased 0.2% and FTSE futures 0.1%.

The pick-up in China was a marked contrast to the U.S. and Europe, where the spread of coronavirus has scarred consumer spending, underlined by dismal U.S. retail sales reported on Friday.

Also evident are doubts about how much of U.S. President-elect Joe Biden’s stimulus package will make it through Congress given Republican opposition, and the risk of more mob violence at his inauguration on Wednesday.

“The data bring into question the durability of the recent move higher in bond yields and the rise in inflation compensation,” said analysts at ANZ in a note.

“There’s a lot of good news around vaccines and stimulus priced into equities, but optimism is being challenged by the reality of the tough few months ahead,” they warned. “The risk across Europe is that lockdowns will be extended, and U.S. cases could lift sharply as the UK COVID variant spreads.”

That will put the focus on earnings guidance from corporate results this week, which include BofA, Morgan Stanley, Goldman Sachs and Netflix.

The poor U.S. data helped Treasuries pare some of their recent steep losses and 10-year yields were trading at 1.087%, down from last week’s top of 1.187%.

The more sober mood in turn boosted the safe-haven U.S. dollar, catching a bearish market deeply short. Speculators increased their net short dollar position to the largest since May 2011 in the week ended Jan. 12.

The dollar index duly firmed to 90.816, and away from its recent 2-1/2 year trough at 89.206.

The euro had retreated to $1.2074, from its January peak at $1.2349, while the dollar held steady on the yen at 103.78 and well above the recent low at 102.57.

The Canadian dollar eased to $1.2773 per dollar after Reuters reported Biden planned to revoke the permit for the Keystone XL oil pipeline.

Biden’s pick for Treasury Secretary, Janet Yellen, is expected to rule out seeking a weaker dollar when testifying on Capital Hill on Tuesday, the Wall Street Journal reported.

Gold prices were undermined by the bounce in the dollar leaving the metal at $1,828 an ounce, compared to its January top of $1,959.

Oil prices ran into profit-taking on worries the spread of increasingly tight lockdowns globally would hurt demand. [O/R]

Brent crude futures were off 52 cents at $54.58 a barrel, while U.S. crude eased 44 cents to $51.92.

(Editing by Shri Navaratnam and Gerry Doyle)

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