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Israel's economy would have to deteriorate significantly before a rate cut -cenbank chief – Financial Post



JERUSALEM — Bank of Israel Governor Amir Yaron said on Thursday it would need a significant economic slowdown for policymakers to lower short-term interest rates.

“There has to be a more significant deterioration in economic activity,” Yaron told reporters after the Bank of Israel held its benchmark interest rate at 0.25% at a policy meeting, as widely expected amid a stable shekel and solid economic growth.

“Risks of a marked deterioration in the global economy declined and growth is expected to improve in 2021,” he said.

Yaron pointed to both the U.S. Federal Reserve and European Central Bank as currently stopping any further easing as well as a rate hike in Sweden.

In an updated forecast, the bank’s own economists reiterated a view that the key rate would either remain unchanged or fall to 0.1% this year, with a gradual rise in the rate towards the end of 2021.

Yaron and other monetary policy committee (MPC) members have made it clear that they would prefer to leave the rate unchanged and use other tools like foreign exchange intervention to prevent a further shekel appreciation, which has already helped trigger a sharp drop in inflation to an annual rate of 0.3% in November.

“The committee is taking additional steps as necessary to make monetary policy more accommodative,” Yaron said, declining to elaborate.

Since the previous rate decision on Nov. 25, the Bank of Israel has bought more than $3.5 billion of foreign currency, which has led to a stabilization of the exchange rate.

The shekel gained 8.3% versus a basket of currencies of main trading partners in 2019, “a development that continues to make it difficult to return inflation to the target range,” the bank said in a statement.

Yaron noted that the strength was beyond what would expect as a result of a healthy economy and partly blamed some of the gains to “short-term financial factors.” He declined to specify what these factors were but analysts believe they are speculators.

Israel’s economy grew an estimated 3.3% last year but the central bank’s staff projects a slowdown to 2.9% in 2020 – with 0.3 percentage points of that coming from the start of natural gas production at the Leviathan field.

Yaron said the weaker growth will stem from a markedly contractionary fiscal effect in the first half of 2020 in the absence of an approved 2020 budget, given the year-long political stalemate and the current caretaker government’s limited ability to act. A third election in less than a year is slated for March 2.

“There is uncertainty regarding the fiscal policy that will prevail after the elections, as it is likely to be contractionary as well, should necessary steps to deal with the rising deficit be taken,” he said. “As long as the political and fiscal uncertainty continues, it sharpens the need to keep monetary policy accommodative in order to support growth.”

(Reporting by Steven Scheer and Ari Rabinovitch; Editing by Tova Cohen and Susan Fenton)

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Falling exports bring German economy to standstill in fourth quarter – TheChronicleHerald.ca



BERLIN (Reuters) – Shrinking exports held back German economic activity in the fourth quarter of last year, detailed data showed on Tuesday, confirming that Europe’s largest economy was stagnating even before the coronavirus outbreak began.

Germany’s export-dependent manufacturers are being hit by a slowing world economy and increased business uncertainty linked to tariff disputes and Britain’s exit from the European Union.

The Federal Statistics Office said exports fell by 0.2% in the fourth quarter from the third, which meant that net trade took off 0.6 percentage points from gross domestic product growth.

The trade outlook remains clouded as the coronavirus epidemic is adding another risk, Ifo President Clemens Fuest said. The Ifo index for export expectations fell in February, with car companies among the most pessimistic, Fuest added.

Gross investment – which includes construction – rose by 2.9% in the last quarter of the year, adding 0.6 percentage points to growth, the statistics office said.

State consumption added 0.1 percentage points to growth while private consumption, which has been a key pillar of support recently, made no contribution.

The Statistics Office confirmed that the German economy grew by 0.6% last year, the weakest expansion rate since the euro zone debt crisis in 2013.

For 2020, the government expects growth to pick up to 1.1%, helped mainly by a higher number of working days in a leap year. Adjusted for calendar effects, Berlin predicts 0.7% growth.

Andrew Kenningham, an analyst from Capital Economics, said the German economy would continue to stagnate during the first half of this year as global demand would remain weak and domestic investment was likely to drop.

The impact of the coronavirus on the German economy through disrupted supply chains or lower demand from China had been small so far, Kenningham noted.

“But the longer the disruption in China continues, the greater the risks. And the possibility of the virus spreading in Europe poses a new downside risk.”

China is Germany’s most important trading partner, with car makers being especially dependent on both Chinese supply chains and demand from China.

(Writing by Madeline Chambers and Michael Nienaber; Editing by Michelle Martin)

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Germany's economy stalled in the fourth quarter – MarketWatch



Germany’s economy stalled in the fourth quarter as consumption lost steam, Germany’s Federal Statistical Office said Tuesday, confirming a preliminary estimate.

The quarter-on-quarter comparison shows that while consumption was the main driving force of growth in the third quarter, it slowed markedly in the fourth quarter. Household consumption stagnated in the fourth quarter and government consumption rose only 0.3%, Destatis said.

As previously reported, gross domestic product–the broadest measure of goods and services produced in an economy–remained flat at 0.0% compared with the previous quarter. GDP grew 0.4% on year in the fourth quarter on a calendar and price-adjusted basis, Destatis said, confirming the first estimate.

Before last week’s preliminary estimate, weak data for manufacturing orders and industrial production in December had raised fears that the economy had stagnated or even contracted in the fourth quarter.

While foreign trade was another driver of economic growth in the third quarter, it slowed economic activity in the fourth quarter. Destatis said exports were down 0.2% in the quarter, while imports rose 1.3%.

Gross fixed capital formation went up 0.6% in the construction sector due to the mild weather, while it decreased in machinery and equipment by 2.0%.

German GDP grew 0.2% in third quarter and declined 0.2% in the second quarter, after having grown 0.5% in the first quarter.

The German economy grew 0.6% in 2019 on a calendar and price-adjusted basis, Destatis said.

Write to Maria Martinez at maria.martinez@wsj.com

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Blows keep coming for our economy, and the Bank of Canada will be left to clean up the mess – Financial Post



The Canadian economy is off to a terrible start to 2020 as four years of inept government policy are starting to come home to roost.

Manufacturing sales have posted their fourth consecutive negative reading, retail sales were stagnant to end 2019 and signs are that GDP growth is stalling and may actually be negative when accounted for on a per-capita basis.

We worry that our booming housing market may not be enough to prevent this situation from worsening, with the potential for a recession that could drag interest rates and the loonie lower as well.

And concerns about the coronavirus and its global economic impact couldn’t come at a worse time.

The other broader issue is what it could ultimately do to Canada’s reputation as a place to do business

BMO chief economist Douglas Porter

The problem is that the PMO has for the most part appeared more concerned with other issues, such as securing a UN Security Council seat, than it has on ensuring the economy stays on track.

Instead of nipping anti-pipeline blockades in the bud, they were allowed to rapidly expand and paralyze both the country’s economy and our reputation globally as a secure place to do business. Grain shipments have been halted costing hundreds of millions in lost sales, thousands of rail jobs have been temporarily lost and the lack of propane shipments to the Atlantic provinces have left inventory levels dangerously low.

Douglas Porter, chief economist at BMO, highlights a much more important takeaway: “But the other broader issue is what it could ultimately do to Canada’s reputation as a place to do business, and ultimately that might be the most potentially damaging aspect of this episode.”

The same message was sent this weekend when Teck Resources Ltd. announced it had decided to cancel its $20 billion Frontier oilsands mine citing worries over Canada’s inability to create a framework that “reconciles resource development and climate change.”

Frontier isn’t an isolated incident: It now joins the $100 billion of resource projects that were scrapped from 2017 to 2019, according to the C.D. Howe Institute. Consider for a moment the massive opportunity cost this represents for the country as a whole, simply due to bad policy implemented during a period of volatile energy prices.

For those who say that ramped-up fiscal spending by the Federal Government will help offset some of the damage, don’t forget that Ottawa hiked higher personal tax rates and attacked small business in a bid to raise revenues to cover some of that spending while concurrently having to deal with debt servicing costs.

For example, according to a recent report by the Fraser Institute, “At the federal level, the amount that will be spent on interest payments in 2019-20 ($24.4 billion) is higher than what the government expects to spend on Employment Insurance benefits ($19.3 billion) and the Canada Child Benefit ($24.1 billion).”

In the end, we think it will be left up to the Bank of Canada to deal with this mess. This means they may finally have to give up the hallowed ground they have defended for so long and implement an emergency interest rate cut. With oil prices in the toilet, they may be removing a key support for the Canadian dollar.

For those wondering what the potential impact will be, we recommend having a look at the Australian dollar which until May of last year had a strong correlation with our currency’s relationship to the U.S. dollar. Back then both were at 0.75 but the AUD has since been walloped down to 0.66.

This would be terrible news for Canadian consumers especially since we import so many of our goods from the U.S. But it would be extremely beneficial to our exporters including our resource and manufacturing sectors. It could also add gasoline to our housing market especially considering the government recently loosened mortgage-lending standards.

Either way, a lack of focus on the importance of the Canadian economy and leaving it up to the Bank of Canada to rescue us is not a policy that instills much confidence. And confidence is something all of us Canadians could use a bit more of these days.

Martin Pelletier, CFA is a Portfolio Manager and OCIO at TriVest Wealth Counsel Ltd, a Calgary-based private client and institutional investment firm specializing in discretionary risk-managed portfolios as well as investment audit and oversight services.

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