“Resignation of the Italian Prime Minister…”

Source: Reuters

Italian Prime Minister Giuseppe Conte handed in his resignation to the head of state on Tuesday.  The president’s office said, this has opened the way for formal consultations on how to overcome the political crisis.  On Wednesday afternoon, President Sergio Mattarella had to start consultations with party leaders his office said in a statement.  Former premier Matteo Renzi, a central figure in an Italian government crisis had to meet the head of state on Thursday and tell him whether he is ready to support a new government headed by caretaker Prime Minister Giuseppe Conte.  Renzi triggered Conte’s resignation this week when he pulled his Italia Viva party out of the ruling coalition, depriving it of a majority in the upper house Senate and throwing the country into political limbo.  The crisis is hampering the efforts to put together a recovery plan need to obtain more than 200 billion euros of European Union financing to rebuild an economy damaged by the coronavirus.

UK Jobless Rate

The unemployment rate in the UK reached its highest in nearly five years in the three months to November amid the increase in Coronavirus infections as the country returned to partial lockdown. As redundancies reached a record high the unemployment rate is at 5% to the highest since mid-2016, according to official data. Unemployment has been kept down by the government’s Job Retention Scheme which supported 2.4 million jobs as at 31 October down from a peak of 8.9 million in May. The programme costs 46.4 million pounds up to mid-December and is due to end on 30 April.

UK’s Drop in Spending

Debit and credit card spending by British households has dropped sharply.  The proportion of workers on furlough has risen to its highest since July after new coronavirus lockdown measures were introduced this month.  For the second week running official data showed that credit and debit cards spending was 35% below its level in February 2020, at the beginning of the pandemic.  The furlough programme had cost more than 46 billion pounds as of 13 December making it the most expensive single economic support measure of the crisis for Britain.  The programme is due to expire on April 30.  Government forecasters are expecting public borrowing to approach 400 billion pounds this year including more than 280 billion pounds of COVID-related spending.

German Business Morale

German Business morale dropped to a six-month low in January amid a second wave of COVID-19 that stopped the recovery of the German economy, which will stagnate in the first quarter according to the Ifo economic institute on Monday.  Ifo said that its business climate index fell to 90.1 from an upwardly revised reading of 92.2 in December.  Chancellor Angela Merkel and state leaders agreed last week to extend a lockdown until mid-February in Germany, as the country struggles with a second wave of infections.  The economy is likely to reach pre-pandemic levels in mid-2022 according to a draft document by the economy ministry. 

IMF Lifts Global Growth Forecast for 2021

The International Monetary Fund on Tuesday raised its forecast for global economic growth in 2021 and said the coronavirus triggered a downturn last year.  The global lender said that multiple vaccine approvals and the start of the vaccines in some countries boosted hopes of an eventual end to the pandemic that has now infected nearly 100 million people and claimed the lives of more than 2.1 million globally.  It however warned that the world economy continued to face “exceptional uncertainty” and new waves of COVID-19 infections and variants posed risks whilst global activity would remain well below pre-COVID 19 projections made one year ago.  According to IMF chief economist Gita Gopinath, US President Joe Biden’s pledge to fund the World Health Organisation’s COVAX vaccine initiative marked a “a very big step” to containing the pandemic and ensuring a more equitable distribution of the vaccine. The IMF estimates that close to 90 million people are likely to fall below the extreme poverty threshold during 2020-2021 with the pandemic wiping out some $22 trillion in projected output through 2025 and reversing the progress made in reducing poverty over the past two decades. Gopinath said advanced economies were recovering more quickly and urged countries with the means to continue to offer support to poorer nations in aid, low-interest loans and debt relief.  In its latest World Economic Outlook, the IMF forecast a 2020 global contraction of 3.5% and it predicted global growth of 5.5% in 2021 and 0.3% point better than in October, citing expectations of a vaccine-powered uptick later in the year and added policy support in the US, Japan and a few other large economies.  

Federal Reserve Meeting

The Federal Reserve on Wednesday left its key overnight interest rate near zero and made no change to its monthly bond purchases.  They pledged to keep those economic pillars in place until there is full rebound from the COVID-19 recession.  In a statement released after the end of their meeting US central bank policymakers showed concerns about the pace of the recovery.  After the meeting, in a news conference Fed Chair Jerome Powell noted the resilience of the economy with major industries such as housing, financial services and others adapting to the pandemic with new technologies and strategies. The Fed’s decision to leave its benchmark overnight interest rate in a target range of 0 to 0.25% and to keep buying at least $80 billion of Treasury bonds and $40 billion of mortgage-backed securities each month was unanimous. 

US Economy

The US economy contracted at its sharpest pace since World War Two in 2020.  A snapshot by the Commerce Department of the fourth-quarter gross domestic product on Thursday showed the recovery from the pandemic losing steam amid a resurgence in the number of coronavirus infections and the exhaustion of nearly $3 trillion in relief money from the government.  The economy contracted 3.5% in 2020 the worst performance since 1946.  That followed 2.2% growth in 2019 and was the first annual decline in GDP since 2007-09 Great Recession.  The economy went into recession last February.  Economists are expecting growth to further slow down in the first quarter of 2021.  


Oil prices rose about 1% on Monday amid optimism around US stimulus plans and some supply concerns that boosted futures. Concerns over demand prompted by the lockdowns limited gains. Oil prices were stable on Tuesday with Brent crude rising 0.3% at $56.03 while US crude rising 0.2% reaching $52.88.  Both contracts climbed nearly 1% on Monday and are set to post the third monthly rise, trading near 11-month highs.  Although the pace of new infections in the US falls, European nations are setting tougher restrictions to combat the spread of the virus while vaccines are being rolled out.  In China the number of COVID-19 cases has increased raising concerns over the demand prospects on the largest energy consumer. 

Market Wrap

European stocks edged higher on Monday amid upbeat earnings and gains in technology shares. Tech shares were up 1.2% and gained the most among the sectors with their US peers trading near all-time highs.  Meanwhile in the UK, equities came under pressure after the health minister said on Sunday that 77 cases of the South African variant of the COVID-19 were detected in Britain, while French stocks moved downwards amid talks of a third lockdown.  British Airways owner IAG, Ryanair, Lufthansa and Air France KLM dropped 3.9% and 6.9% while retailers fell 0.4%. 

US Democrats are still trying to convince Republican lawmakers of the need for more stimulus, raising questions over what form and when the package will be approved.  The $1.9 trillion pandemic relief proposal by Joe Biden has been met with objections from Republicans, calling the proposal too expensive and pushed for a smaller plan targeting vaccine distribution.

US Stocks rose on Tuesday with the S&P 500 hitting another record high amid positive earnings updates from some companies that supported sentiment.  Ten of the 11 S&P sectors rose in early trading with energy and industrials leading gains.  Gains in financial services and chemical sectors helped European stocks rise on Tuesday after two sessions of declines.  European shares edged higher on Tuesday after two sessions of declines, as UBS posted a surge in quarterly net profits, but gains were capped by concerns about extended lockdowns and US stimulus measures. Italy’s FTSE MIB hovered near a one month low, as Prime Minister Giuseppe Conte was set to resign later on Tuesday on hopes President Sergio Mattarella will give him a mandate to form a new government with broader backing in parliament. 

European stocks tumbled on Wednesday amid talks of further interest rate cuts by the European Central Bank that hit banking stock and the extended lockdowns that lead to a slash in the growth forecast for 2021 by the German government. 

Global investment sentiment became gloomy as investors turned more cautious about the increased number of cases around the world and about stretched stock valuations as retail investors invested in some niche US stocks causing an increase in their market value within just days.  The German DAX underperformed major regional indexes dropping 1.8% after the growth forecast for Germany was cut to 3% for this year, a sharp drop from last autumn’s estimate of 4.4%. On Wednesday, the sell-off appeared in miners, banks and automakers dropping by 23% and 3.6%. 

Currency Roundup

The euro dropped on Monday after the Ifo survey showed German business morale dropping.

The dollar climbed to a one week high against its rivals on Tuesday amid uncertainty over the size of the US stimulus ahead of this week’s Federal Reserve policy meeting. Against a basket of its rivals, the dollar climbed 0.2% to 90.65 its highest level since 20 January.  Thanks to rising US Treasury yields, the dollar strengthened 1.6% in three weeks, after a drop of 6% between September and January.   The Euro was under selling pressure due to early signals that the economy may not rebound as strongly this year as predicted. Sterling dropped to its lowest in a week against the dollar and traded near a one-week lows against the euro as more gloomy risk sentiment spread across asset markets weighed on the currency.  The Chinese yuan was supported by tight liquidity, whilst emerging market currencies remained under pressure with the Brazilian real and the Mexican peso stabilising after a sharp selloff in the past 48 hours.

Sterling rose to an eight-month high against a weakening euro on Wednesday helped by the UK’s COVID-19 vaccine rollout.  The Euro was under pressure after the ECB member said the central bank has room to cut its deposit rate further.

The dollar extended gains against most currencies on Thursday as concerns about excessive valuations boosted the demand for the safe-haven dollar.   The Australian and New Zealand dollars, two currencies considered a barometer of risk appetite, also dropped against their US counterpart in a sign that market confidence is waning.


Gold prices edged lower on Tuesday as the dollar appreciated and concerns over the US stimulus package weighed on the metal’s appeal.  Meanwhile investors awaited a Federal Reserve policy meeting for news about the monetary policy outlook.  Spot gold dropped 0.2% to $1852.30 per ounce whilst US gold futures eased 0.3% to $1,849.60.  Gold dropped despite the US 10-year Treasury yields hit a three-week low.  Lower yields reduce the opportunity cost of holding non-yielding bullion. 

Malta:  Unemployment Rate – December 2020

In a press release dated 26 January 2021 by the National Statistics Office in December 2020 the monthly unemployment rate was 4.5% at par with the previous month. Whilst the unemployment rate for males was 4.6% that for females was at 4.4%.   The unemployment rate for persons aged 15 to 24 years was 11% while the rate for those between 25 and 74 years also stood at 3.8%. 

Malta:  Expenditure of General Government Sector By Function: 2015-2019

In a press release dated 27 January 2021, the National Statistics Office shows that social protection remained the core function of the government expenditure in 2019 representing 29.1% of total General Government expenditure, followed by General public services, Health and Education. In 2019, total General Government expenditure increased by EUR 414.1 million over 2018, amounting to EUR 4,989.9 million. Expenditure on General public services registered a rise of EUR 88.3 million the second largest increase over 2018. Education and Health both increased by EUR 65.2 million. Expenditure on Environment protection increased by EUR 38 million and amounted to EUR 194.2 million.

Antonella Mercieca

Client Relationship Manager


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


January 29th, 2021

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