“UK Economy At Its Weakest Since 2012 …”

UK Economy At Its Weakest Since 2012

In late 2018, the British economy has slowed sharply pushing annual growth to a six-year low.  Uncertainty over Brexit had an impact on the business investment and a slowdown in the global economy weighed on trade, data showed on Monday.  Between October and December of 2018 quarterly growth fell to 0.2 percent from 0.6 percent in the previous quarter.  Output in December dropped the most since 2016.  Business investment dropped 3.7 percent in the fourth quarter compared with a year earlier, which is the biggest fall since the first three months of 2010, when Britain was emerging from recession.   Businesses are concerned about the uncertainty from the lack of plan for Brexit.  Household spending which offered an unexpectedly strong boost to growth in the mid-2018 remained resilient at 1.9 percent higher than a year ago.  Government spending also picked up.  After the release of data sterling fell a third of a cent to below $1.29.  For 2018, UK growth dropped to its lowest since 2012 at 1.4 percent down from 1.8 percent in 2017 and weaker than the Eurozone.

UK’s Inflation Below Target

In January inflation rate in the UK fell back below the central bank’s target for the first time in two years, reducing pressure on policy makers as they face a possible no deal Brexit.  On Wednesday the Office for National Statistics said that inflation slowdown, which is sharper than the BOE anticipated, was driven by cheaper gasoline, sharp fall in gas and electricity costs because of new regulatory price caps.  Whilst in November, the BOE predicted inflation would average 2.2 percent in the first quarter, it now forecasts just 1.8 percent, with the rate staying below target for the rest of the year.

Brexit

On Thursday, Theresa May suffered a defeat on her Brexit strategy that undermined her pledge to European leaders to get her divorce deal approved if they grant her concessions.  Brexit supporters in her Conservative Party decided to abstain, resulting in a defeat as she tries to renegotiate her deal with the EU.  Although this will not deter May from trying to secure changes on the most controversial issue of the deal, the Irish “backstop”, the vote shows that  pro-Brexit lawmakers are a major obstacle to passing an agreement.  May is due to return to parliament on 27^th February.

Germany Escapes Recession

On Thursday, the Federal Statistics Office said that Gross domestic product in Europe’s biggest economy was unchanged for the quarter.  As there was no change in growth in the fourth quarter, the economy escaped recession which is defined as two or more consecutive quarters of contraction after it shrank by 0.2 percent in the third quarter. Business confidence which dropped for the fifth consecutive month in January is being effected by the fall out in trade disputes and concerns over Brexit.  Weaker demand for German goods and services from countries such as China, the Eurozone and emerging markets is depressing morale.  A concern for the government is that technological innovation and the acquisition of German industrial know-how by foreign companies such as Chinese could have a negative impact on the manufacturing base on which much of the country’s wealth is built.   The economy Minister said last week that the government might take stakes in key domestic companies to prevent foreign takeovers.  He said that a shift in policy was needed to safeguard Germany’s prosperity.

US – China Trade Talks

The world’s two largest economies are trying to reach an agreement before the 1^st March deadline, after which US tariffs on $200 billion worth of Chinese imports are scheduled to increase to 25 percent from 10 percent.  This week trade talks began in Beijing after an earlier round in Washington last week ended up without a deal.  Top US negotiator stated that a lot more work needed to be done.   Washington is expected to keep pressing Beijing to make sweeping structural reforms to protect American companies’ intellectual property, end policies aimed at forcing the transfer of technology to Chinese companies, and curb industrial subsidies.  On Tuesday President Donald Trump said that he could see letting the 1^st March deadline for reaching a trade agreement with China “slide for a little while” if the two sides were close to complete a deal.  Officials in Washington and Beijing had expressed hopes that a round of talks this week would bring them closer to ease the past seven months of trade war.

Tentative Deal Reached To Avoid Government Shutdown

Negotiators at the US congress on Monday reached a tentative deal to try to avert another partial government shutdown on Saturday, however, congressional aides said it did not contain the $5.7 billion President Donald Trump wants for a border wall.

Trump Vows Emergency Declaration Over Wall

On Thursday Donald Trump vowed to declare a national emergency in an attempt to fund his US-Mexico border wall without approval from Congress.  Trump agreed to sign a government-funding bill that lacks money for the wall, however, this prevents another government shutdown.  The bill passed by both by the US Senate and House of Representatives contains money for fencing and other forms of border security.  However, the wall is ignored.  According to Trump the wall was needed to check illegal immigration and drugs and it was promised by Trump in his 2016 campaign to be paid by Mexico.  The bill was expected to be signed by the President on Friday at the Whitehouse.

US Retail Sales

US retail sales recorded their biggest drop in more than nine years in December suggesting a sharp slowdown in economic activity at the end of 2018. According to the Commerce Department retail sales tumbled 1.2 percent, which is the largest decline since September 2009 when the economy was emerging from recession.   Data on Thursday also showed an unexpected increase in the number of Americans filing claims for unemployment benefits last week.  Meanwhile, moderate inflation and softening domestic demand support the Federal Reserve’s pledge to be “patient” before raising interest rates further this year.

China’s January Trade Data

China’s exports in January returned to growth after a sharp decline in the previous month, while imports fell much less than expected.  January exports rose 9.1 percent from a year earlier showed customs data, whilst imports fell 1.5 percent, leaving the country with a trade surplus of $39.16 billion for the month.  However, analysts warned that data from China early in the year is to be treated with caution due to business distortions caused by the long Lunar New Year holidays, which started on 4^th February of this year.  Many companies rush out shipments or replenish their inventories of raw materials ahead of the holidays.  Trade has been effected globally amid rising protectionism and loss of momentum in some major economies in particular in Europe.

Snap Election In Spain

Spanish Prime Minister Pedro Sanchez called a snap election to be held on the 28^th April.  He will seek to renew his power and hold off the advances of three right-wing groups that could potentially form a governing alliance. Sanchez’s attempt to pass his budget for 2019 failed on Wednesday as it was rejected in parliament after talks to get the support of Catalan pro-independence parties broke down.  The elections extend a period of political uncertainty stretching back to 2015 when former Prime Minister Mariano Rajoy lost his majority.   During the week Spanish 10 year government bond yields were around one basis point higher at 1.263 percent, off the lows of 1.187 percent hit on 1^st February.  The five year bond yields increased by 1.8 basis points to 0.24 percent.

Italy

Italian government bond yields increased since the end of January, on growth concerns and the possibility of early national elections.  Italy’s 10 year government bond yield was last at 2.866 percent off the lows of 2.57 percent hit at the end of January.  On Wednesday the spread between 10 year Italian debt over Spain tightened to 160 basis points, having widened to as much as 178 basis points on Friday of last week.

France

Unemployment rate in France fell unexpectedly at the end of last year to its lowest level since the start of 2009, according to official data on Thursday.  INSEE statistics office said that the jobless rate fell to 8.8 percent from 9.1 percent in the previous quarter, marking the lowest level since the first quarter of 2009 during the depths of the global financial crisis.  The fall in jobless offers Macron a boost as he struggles to restore his authority after the protests that started in November against high diesel prices.  Although jobs growth slowed as France struggled to gain momentum last year, thousands of new jobs are still being created.  INSEE said that this pushed the unemployment rate to 66.1 percent from 65.9 in the third quarter, to its highest level since 1980.

Markets Wrap

On Tuesday Asian shares gained on hopes of a new round of US-China trade talks that would help resolve the trade dispute that has effected global growth and corporate earnings.  Furthermore market sentiment improved on news that US lawmakers had reached a tentative deal on border security funding that could help in avoiding another partial government shutdown which is due to start on Saturday.   Japan’s Nikkei advanced 2.6 percent after a market holiday on Monday, lifted by a weaker yen.  US and Chinese officials expressed hopes the new round of talks which began in Beijing on Monday would bring them closer to a solution to the trade war.  Meanwhile the dollar held firm, having gained for eight straight sessions against a basket of six major currencies until Monday, which is the longest rally in two years.  Although the FED took a dovish turn earlier this year, analyst noted that the US currency still has the highest yield among its major peers and that the FED continues to shrink its balance sheet.  The dollar was also lifted by evidence of a loss of momentum in the global economy and by the recent downgrade of growth in Europe, making the dollar a better investment option by default.  In contrast the euro dropped to as low as $1.1267, which is its weakest in 2 ½ months.  On Tuesday sterling fell against the dollar to a new three-week low, as doubts grew about whether Theresa May could convince the European Union to accept changes to her Brexit divorce deal.  Time is running out as the scheduled date of the 29 March gets closer.  May is expected to seek parliamentary backing again for her withdrawal arrangement with Brussels by the end of February.   In view of the heightened fears of a no-deal and disorderly Brexit which is weighing on consumer and business sentiment, investors want certainty.  Risk appetite surged on Tuesday as investors were more optimistic about the US-China trade talks and the deal to avoid another US government shutdown.  In Europe the German DAX jumped more than 1.2 percent after rising 1 percent on Monday, and Paris and Milan were up 0.8 percent.  The London FTSE approached a four-month peak despite ongoing Brexit uncertainty.  On Thursday optimism about US-China trade talks and strong results from European industrial and consumer staples helped European shares to climb to their highest in three months.  Furthermore, investors were relieved about Germany escaping recession.  The euro also held above a three-month low.   On Thursday, US stocks opened lower as a surprise drop in retail sales in December suggested a sharp slowdown in economic activity at the end of 2018 offsetting hopes of breakthrough in the US-China talks.   European indices also slipped into the red in the afternoon.

Oil

On Monday oil prices climbed after their fall as traders weighed support from OPEC-led supply restraint and a slowdown in the global economy.  Tuesday saw oil prices rising more than 1 percent after OPEC figures showed it cut production sharply in January and lead member Saudi Arabia said it would reduce its output in March by an additional 500,000 barrels.   In a report on Wednesday, the International Energy Agency said that the global oil market will struggle this year to absorb fast growing crude supply from outside OPEC, even with the group’s production cuts and the sanctions of the US on Venezuela and Iran.  The IEA left its demand growth forecast for 2019 unchanged from its last report in January at 1.4 million barrels per day.

Gold

Gold prices fell after having hit a nine-month high at $1326.30 in late January, mostly due to the strength of the dollar.  A stronger dollar makes dollar denominated gold more expensive for holders of other currencies.  On Tuesday gold prices edged higher in late Asian trade as the dollar fell from multi-week highs, drawing support from the global economic slowdown concerns and the uncertainties around the US-China trade talks.  Spot gold hit $1,312 per ounce.  On Wednesday oil priced increased, supported by a weaker dollar and hopes of a deal between the US and China. Improved risk appetite capped the gains for bullians.  Holdings in the SPDR Gold Trust GLD, which is the largest gold-backed exchange traded fund, fell 0.4 percent on Tuesday. Holdings are down about 3 percent so far this month after four straight month of gains.

Malta:  International Trade: December 2018

Preliminary figures show that Malta registered a trade deficit of Eur 117 million in December 2018, down by EUR2.9 million when compared to a deficit of EUR 119.9 million in the corresponding month of 2017.  Both imports and exports decreased by EUR 113.6 million and EUR 110.6 million respectively.  The decrease in the value of imports was primarily due to machinery and transport equipment, mineral fuels, lubricants and related materials.  On the exports side mineral fuels, lubricants and related materials and machinery and transport equipment accounted to the main decrease partly outweighed by an increase in food.

Malta:  Direct Investment in Malta And Abroad:  January – June 2018

As at the end of June 2018 the stock of Foreign Direct Investment in Malta stood at EUR 176.5 billion, while the stock position of Direct Investment abroad amounted to EUR 61.5 billion.  During the first six months of 2018, FDI flows in Malta went up by EUR 1.9 billion.  This is equivalent to an increase of EUR 448.6 million over the corresponding flows in 2017.  The main contributors to total FDI flows were financial and insurance activities with a total contribution of 84.1 percent.

Malta:  Gainfully Occupied Population – August 2018 

In August 2018, registered full-time employment increased by 6 percent while part-time employment as a primary job increased by 1.2 percent when compared to the corresponding month in 2017.

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