Economic forecasts cut in half, the export expectations in the basement, and the US interest rates go crazy. Not good news for the economy. In the past, such characters were often the harbingers of a recession.
First, the good news this week: The Ifo Institute from Munich, has reported on Monday the start of a week that the business climate in this country again a little improvement: After six declines in a row, it went uphill for the Ifo business climate index so slightly. Now the bad news: The Ifo Institute reports on Tuesday that the export expectations in the German industry disappointed in the basement Gera: mainly automotive and metal industry see a decline in their exports. Not a good sign – the automotive industry is known to be the most important branch of industry in this country.
This shows The economic wind continues, he may be stronger than you had hoped. “The German economy is suffering mainly on the loss of impetus of the export business,” says Jörg Krämer, chief economist of Commerzbank. “This is especially true for exports to China.”
Wachstumslok braked
In fact, the engine of the growth engine of the world has started to stutter recently. A global economic slowdown, but also of the customs dispute with the US has had a dampening effect on the otherwise strong Chinese growth. In 2018, the country’s economic growth was 6.6 per cent – the lowest level since 1990. The government in Beijing has announced that it decided to want to countermeasures. She has in the past already, because of the conducting state capitalism has the advantage to be able to intervene where it promises to impact.
Elsewhere is more difficult. There’s disturbing news from the mother country of the liberal capitalism, the USA. Because in the United States, a phenomenon occurred, it was in the past regularly a harbinger of a recession: It was the Ghost of an inverted yield curve is called, in the financial hands of the “inverse structure of interest rates”. They concern financial players in the market because of the last five recessions in the United States, such “topsy-turvy” interest rate world.
The Interest Problem
In this inverted yield curve throw long-term government bonds less the interest rate than short-term. This is wrong because the logic in normal times, works differently: If a Bank gives a consumer a loan for ten years, the interest rate is usually higher than with a year loan. Because, firstly, the return will take payment of a long-running loan any longer, secondly, the risk is higher that something Unexpected happens and the borrower can use the loan. For government bonds, the same logic basically applies.
This ratio turns around, expecting the actors in the financial markets with lower interest rates in the future and a weaker growth of the economy. In addition, the banks get inverse of interest rates is a Problem. Because usually you have to pay on short-term savings deposits of their customers, relatively low interest rates. For this you cash by issuing long-term loans. The interest rates are reversed, you tend to pay their customers higher interest rates, but earn less and less by lending. In consequence, they restrict lending, which accelerated an economic decline through lack of investment and expenditure.
Only a short storm?
The fear of a recession is so acute, because the room for manoeuvre for counter-steering is comparatively small: In Japan and in the Euro area, interest rates are at zero percent; both Central banks have been buying considerable amounts of government bonds. Recently, the European Central Bank has announced a new round of long-term loans to banks to launch at virtually no cost.
Thus, the remaining opportunities for action in the event of a more serious economic decline, fear of Economists is rather limited. “Ten years after the financial crisis, the ECB is still in crisis mode,” says Thomas Mayer, former chief economist of Deutsche Bank, now the asset Manager of brook von Storch Research Institute Flowed. “From there, you can’t expect a lot of help.” Therefore, one can only hope that the government and the economy with their predictions proved to be right: you have the growth forecasts reduced by half, but only of a temporary weakness of the economy.