“NATO Leaders In London …”

NATO Leaders In London

NATO leaders gathered at a gold resort in London on Wednesday for a summit with the aim to tackle disagreements over spending, future threats including China and Turkey’s role in the alliance.  The 29-member military alliance marks the 70th anniversary of its Cold War-era founding.  The Prime minister for the UK said, “Clearly it is important that the alliance stays together”, as he welcomed the heads of state and government.  On Tuesday, leaders held preliminary meetings in London, where differences where aired with Trump, who in the past has called the NATO obsolete, criticizing Macron for comments last month about NATO.  Macron said that it was important for the leaders to discuss the issues in an open and forthright manner if solutions were to be found.  In a final communique, NATO allies will recommit to their pledge to defend each other.  Britain is expected to put six warships, two fighter squadrons and thousands of troops at NATO’s disposal to meet a US demand for European armies to be more ready for combat.  NATO will also warn China for the first time that it is monitoring Beijing’s growing military might.  Leaders will agree to prepare for conflicts in space, the Arctic and computer networks as well as land, sea and air battles.

UK Manufacturers Cut Jobs

British manufacturers cut jobs last month at the fastest rate since 2012, according to a survey on Monday amid the Brexit uncertainty and a global slow down that caused the sector’s longest decline since the financial crisis.  The IHS Markit/CIPS manufacturing Purchasing Mangers’ Index (PMI) sank to 48.9 in November from 49.6 in October.  The PMI has stuck below the 50 threshold that separates growth from contraction for a seventh consecutive month, which is the longest since 2009.  The PMI’s employment component sank to 46.8 from 47.1, representing the biggest loss of jobs since 2012.  Although unemployment rate is at its lowest since 1975, official figures have shown that employers in the UK in the third quarter cut jobs by the most for any quarter in the past four years.  Manufacturing makes up around 10 percent of Britain’s economy.  In the third quarter output in the sector fell by 1.4 percent from a year earlier, while growth in the economy slowed to 1 percent, its weakest since 2010.  The confederation of British Industry earlier on Monday forecasts economic growth for 2020 at 1.2 percent and 1.8 percent in 2021 on the assumption that Britain will leave the EU with a Brexit deal on 31 January and then reach a deal to preserve the tariff-free trade.

Eurozone Factory Activity

Eurozone manufacturing activity contracted for a 10th straight month in November.  The IHS Markit’s final manufacturing Purchasing Managers’ Index (PMI) at 46.9 has been below the 50-mark separating growth from contraction since February and above the 45.9 above October.  Last week the If economic institute said that Germany, which is Europe’s biggest economy, is going through a soft patch but is on track to grow 0.2 percent this quarter.  Meanwhile, its export-dependent manufacturing sector contracted at a slower pace for the second month in a row in November, showed the German factory PMI.

German Industry

Germany’s industrial output unexpectedly dropped in October, boosting concerns about its economic growth outlook as manufacturing is being affected by the global trade conflicts and disruptions in the auto sector.  Industrial output dropped 1.7 percent on the month against the expectations for a 0.1 percent rise, said the Statistics Office figures showed on Friday.  Production of capital goods slumped by 4.4 percent on the month, the steepest decline in more than five years.  The German economy is going through a soft patch as export-oriented manufacturers struggle against a backdrop of trade frictions, a weak car industry and uncertainty over Brexit.   The German industry now expects output in the coming months to fall more slowly than was foreseen a month ago, according to a survey of 2,300 firms in the sector by the Ifo economic institute.  The automobile association VDA said on Wednesday that it expected global car sales to fall by 5 percent this year and that the crisis would force German companies to cut more jobs in 2020.  Angela Merkel’s right-left coalition government has rejected calls from industry groups and economists for a stimulus package to put the economy back in growth mode.

China’s Factory Activity In November

China’s factory activity showed signs of improvements in November as growth picked up to a near three-year high, according to a private sector survey on Monday.  The Caixin/Markit manufacturing Purchasing Managers’ (PMI) index rose to 51.8 in November from 51.7 in the previous month, marking the fastest expansion since December 2016 (51.9).  The 50-mark separates expansion from contraction on a monthly basis.  The survey and the strong official PMI helped push Asian shares higher on Monday.  Total new orders and factory production remained at buoyant levels in November however they both eased slightly from record high achieved in the previous month.  China’s official factory activity gauge on Saturday was also a surprise returning to growth for the first time in seven months as domestic demand picked up amid the stimulus measures.  Export orders were sluggish.  The official survey focuses more on heavy industry than Caixin’s, which is believed to include firms that are more export oriented.  The Chinese government has tried to boost domestic for well over a year, through higher infrastructure spending and tax cuts.  Such measures have been slow to leave an impact.  In the third quarter, economic growth cooled to a near 30-year low of 6 percent in the third quarter.  China has brought forward 1 trillion yuan of the 2020 local government special bond quota to this year.  The aim of the bonds is to fund public works.

US Manufacturing Contracts Further

US factory activity contracted for a fourth straight month in November as new orders dropped to around their lowest levels since 2012.  Construction spending also fell in October.  Meanwhile, the Institute for Supply Management (ISM) said its index of national factory activity dropped 0.2 point to a reading of 48.1 last month.  A reading below 50 indicates contraction in the manufacturing sector, which accounts for 11 percent of the US economy.  Although the ISM said that business sentiment had improved relative to October, as the US and China moved towards a partial trade deal, the reading for November marked the fourth straight month that the index remained below the 50-threshold.  The ISM index remains above the 42.9 level, which is associated with a recession in the broader economy.  The Survey’s factory employment index fell 1.1 points to a reading of 46.6 last month.  This raises the risk that factory payrolls remained depressed in November after being downwardly affected by the striking workers at General Motors in October.

The World Trade Organisation

The World Trade Organisation on Monday rejected the European Union claims that it no longer provides subsidies to plane maker Airbus.  This has prompted the United States to say it could increase retaliatory tariffs on a wider range of European goods.  According to US Trade Representative Robert Lighthizer said the decision affirmed that European subsidies to Airbus continued to harm the US aerospace industry and strong action was required to eliminate such market-distorting subsidies.  In October the US awarded the right to impose tariffs on $7.5 billion of annual EU imports in its case against Airbus.  It placed partial tariffs on most Airbus jets and products amongst them cheese, olives, and single-malt whisky.  Meanwhile, a decision on relation rights for the EU in a parallel case on aid for Boeing is due next year.

US Private Sector Job Growth

US Private-sector job growth unexpectedly slowed to its weakest pace in six months in November and goods producers and construction firms cut jobs, said a private survey on Wednesday. The ADP National Employment Report said that US companies’ payrolls rose by 67,000 last month.  It was the lowest monthly gain since May when only 46,000 jobs were created, the lowest since 2010.  This continues with the declining trend in job growth that has taken hold this year.  The report is jointly developed with Moody’s Analytics.   All the gains in the jobs for November came from the services sector, which added 85,000 jobs, down from 135,000 in October and the lowest in May.   Producers for goods cut jobs for a third straight month, shredding off 18,000 positions spread across the manufacturing, construction, natural resources and mining industries.  The figures from ADP come ahead of the US Labour Department’s more comprehensive non-farm payrolls report that will be issued on Friday that includes both public and private-sector employment.  Meanwhile in a separate report on Thursday, the Labour Department said initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 203,000 for the week ended 30 November, the lowest since mid-April.

Trade Talks

Trump and Chinese President Xi Jinping had planned to meet and sign the preliminary trade deal at summit in Chile in November, which was cancelled because of violent anti-government protests in Santiago.  Trump’s comments earlier in the week that a trade agreement with China might have to wait until after the presidential election in 2020 pushed the share prices down world-wide. This reduces any hopes for a quick resolution to the trade dispute that has been long outstanding and effected the global economy.   The comment by US President Trump that he had “no deadline” for an agreement with China has hurt sentiment as the trade war has caused frictions and weakened world growth. Meanwhile, on Wednesday US President Donald Trump said that trade talks with China were going “very well” sounding far positive then Tuesday.  Trump told reporters at a meeting of NATO leaders near London, “Discussions are going very well, and we will see what happens.”  Stocks rebounded on Wednesday when Bloomberg reported that the two sides were closer to agreeing how many tariffs would be rolled back in a “phase one” trade deal.

Other Countries Hit By Tariffs?

On Monday Trump said he would hit Brazil and Argentina with trade tariffs for the “massive devaluation of their currencies.”   Also, on Monday the US government said it may impose punitive duties of up to 100 percent on $2.4 billion of imports from France, including champagne, handbags, cheese and other products, after concluding that France’s new digital services tax would harm US tech companies.  The French Finance minister Bruno Le Maire described the proposals as “unacceptable.”  The US trade Representative’s Office said on Monday that its investigation found that the French tax was “inconsistent with the prevailing principles of tax policy.” It said that it found the French tax proposal “unusually burdensome for affected US companies,” including Alphabet Inc’s Google, Facebook Inc, Apple Inc and Amazon.com Inc.  The latest ruling by the US government lead to the French luxury-goods stocks to drop.

US Trade Deficit

The US trade deficit dropped to its lowest level in nearly 1 ½ years in October, suggesting that trade could contribute to economic growth in the fourth quarter.  Meanwhile, a fall in imports of consumer goods hinted at a slowdown in domestic demand.  The Commerce Department said that the trade deficit dropped 7.6 percent to $47.2 billion, the smallest since May 2018 as both imports and exports of goods declined.  This was the second straight monthly fall in the trade bill and the biggest percentage drop since January.  The decreases in imports and exports suggested the agenda of the White House “America First”, marked by the 17-month trade war with China, was reducing trade flows, which in the long run is detrimental to domestic and global growth.  The goods trade deficit with China fell 1.1 percent to $31.3 billion, with imports unchanged and exports increasing 3.4 percent.  Meanwhile, the goods trade gap with the European Union jumped 20 percent to $16.4 billion, with imports surging to a record high.


Oil prices slipped on Tuesday after US President Donald Trump said a trade deal with China could be delayed until after the next US Presidential election.   Oil producers led by Saudi Arabia and Russia agreed on Thursday to cut output by an extra 500,000 barrels a day in the first quarter of 2020, however there was no action plan beyond March.   The countries involved, pump over 40 % of the world’s oil, and their new combined cuts amount to 1.7 million barrels per day or 1.7 percent of global production.  The details of the agreement and how the cuts will be distributed among producers still need to be ratified at a meeting in Vienna on Friday.

Market Wrap

European shares climbed back to recent highs on Monday, amid upbeat factory activity in China.  Also, major eurozone economies boosted trade sensitive sectors including miners, oil and gas.  Optimism also spread from Asian markets as a private business survey showed that factory activity in China has unexpectedly expanded at the quickest pace in almost three years in November with robust increases in output and new orders.  Meanwhile, the IHS Markit’s Manufacturing PMI for France picked up at the fastest pace in five months in November, while the manufacturing sector in Germany shrank at a slower pace for the second month in a row.   On Monday the German 10-government bond yields climbed to a one-week high as the Social Democrats chose new leaders, threatening the ruling German coalition.  The new leaders of the Social Democrats (SPD) are demanding a shift in policies, and several senior conservatives on Sunday ruling out talks to renegotiate a governing agreement.  US stocks fell at the open on Tuesday after the comments from President Donald Trump sparked fears of the delay in resolving the trade war with China until after the presidential election in November 2020.  US Treasury yields rose on Thursday as a range of reports indicated continued economic growth.  The benchmark 10-year yield was four basis points higher at 1.8207 in the morning reflecting increased appetite for risk as weekly job claims fell and US trade deficit dropped suggesting trade could contribute to economic growth in the fourth quarter.  Trading on Thursday also marked the second day of higher yields while global equity markets edged slightly higher after the relative positive comments by Donald Trump that raised the hopes for a trade agreement with China.  The latter is the most unpredictable factor in the market.  Wall Street main indexes also climbed higher.   European shares edged higher on Friday as comments from US Presidential Donald Trump that the talks with China are “moving right along” brought some calmness.  The pan-European STOXX 600 index climbed 0.4 percent more than an hour into trading with banks, technology firms and retail companies leading the gains.  The FTSE gained 0.8 percent, but was on course to record its sharpest weekly decline since early October, as a strong sterling hammered exporters on the index.

Currency Roundup

On Monday the China’s yuan extended gains against the dollar after the head of the central bank made it known that China would not turn to a competitive devaluation and would aim to keep the currency stable.  Sterling on Monday fell as polls showed a growing probability that the 12th December UK election would end in a hung parliament.  Meanwhile on Tuesday sterling climbed to its highest level in six weeks against the backdrop of the weakness of the dollar and the Conservative Party widening its lead before next week’s election.  Against the dollar, sterling rose to 0.33 percent to $1.2989 while it gained 0.3 percent versus the euro to 85.35 pence.  As the risk of a no-deal Brexit has been cut, sterling gained more than 6 percent from 3rd September.   The Canadian dollar was little changed against the greenback on Tuesday, holding near its weakest level since October as investors were worried that the US-China trade deal would be delayed and awaited a Bank of Canada interest rate decision this week.  On Wednesday morning, the pound climbed to a seven-month high versus both the dollar and the Euro.  Against the Dollar sterling climbed by 0.3 percent to $1.3045 while against the Euro, the British currency climbed 0.4 percent to 84.95 pence.  Weakness in the greenback triggered some technical demand for the sterling. The dollar held firm above a one-month low against its rivals on Wednesday amid uncertainty about the progress of the trade talks that boosted the demand for the greenback.  This week the dollar had come under pressure as some good eurozone data and surprisingly strong China survey figures raised the hopes that the global economy will pick up next year and boost the demand for other currencies than the US Dollar.  In the first two days of the week the dollar fell taking it to a one-month low versus its rivals before the latest headlines renewed some safe-haven demand.  On Thursday the dollar retreated towards one-month lows against a basket of currencies, pressured by weaker than expected economic data and this week’s robust performance by the euro and the sterling.  Many currencies traded in tight ranges after conflicting headlines on the phase one deal between the US and China and on whether any kind of agreement could be reached on 15 December when additional US tariffs start on Chinese goods.  Sterling hit 2 ½ year highs versus the euro on Thursday amid growing confidence that next week’s election will give the Conservative Party the parliamentary majority needed for Brexit.

Malta:  Tourism

Total inbound visitors in October were estimated at 287,191 an increase of 6.1 percent over the corresponding month in 2018.  Total tourist expenditure was estimated at EUR 231.1 million, an increase of 7.1 percent over the corresponding month in 2018.  Meanwhile, inbound tourist trips for the first ten months of 2019 increased by 5 percent over the same period in 2018.  Whilst total tourism expenditure was estimated at almost EUR 2 billion, which is 4.5 percent higher than that recorded in 2018, total expenditure per capital stood at EUR 822, a decrease of 0.4 percent when compared to 2018.

Malta:  Gross Domestic Product:  Third Quarter 2019

According to provisional estimates, the Gross Domestic Product (GDP) for the third quarter of 2019 amounted to EUR 3,454.6 million, registering an increase of EUR 181.1 million or 5.5 percent when compared to the corresponding period last year.  GDP increased by 3.4 percent.  Taking the production approach during the third quarter of 2019, Gross Value Added (GVA) increased by EUR 201.1 million when compared to the same quarter last year.  GVA is the net result of output valued at basic prices less intermediate consumption valued at purchasers’ prices.  Another method used to calculate GDP is the expenditure approach and is derived by adding consumption by households, government and non-profit institutions serving households, investment and net exports.  During the third quarter of 2019, total final consumption expenditure increased by 4.6 percent in nominal terms and 2.5 percent in volume terms.  The third approach to measure economic activity is the income approach that shows how GDP at market prices is distributed among compensation of employees, operating surplus of enterprises and taxes on production and imports net of subsidies. Compared with the third quarter of 2018, the EUR 181.1 million increase in GDP at current prices is estimated to have been distributed into a EUR 661.1 million increase in compensation of employees, a EUR 142.1 million increase in gross operating surplus and mixed income and a EUR 27.1 million decrease in net taxation on production and imports



Antonella Mercieca

Client Relationship Manager


Reuters, Bloomberg, https://nso.gov.mt


December 6th, 2019

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