Top Macro Themes
United States in focus
United States in focus
U.S. government shutdown
At the first anniversary of the inauguration of Donald Trump as President of the United States, the U.S. government must confront a partial shutdown because Congress failed to lift the ceiling of public debt. Only so-called ‘essential services’ will be maintained, while about twenty percent of regular government spending is without funding. The dispute between the Democrats and the President’s Republican Party concerns immigration policy and the status of the children of illegal immigrants. For both parties, this is a high-stakes issue along with building a wall between the United States and Mexico.
Stock market boom
While the news coverage highlights the issue of immigration and a non-ending series of real and made-up scandals of the Trump government, it gets largely unnoticed how well the American economy is doing. Most impressive is the rise of the U.S. stock market since the election and since Trump’s inauguration. Since the election of Donald Trump, the stock market value of the American economy has grown by almost seven trillion U.S.-dollars to slightly over thirty trillion U.S.-dollars. On the one hand, this rise lifts the retirements accounts of many Americans, on the other hand, the wealth discrepancy augments because the superrich typically have their wealth in stocks.
European Union in doubt
European Union in doubt
While the political relations between Europe and the United States have deteriorated, the impulses from the American economy have also accelerated growth in Europe and here, too, stock markets have risen. In some places like Germany, stocks have reached new highs. As of now, no concrete protectionist measures have been taken. While Brexit negotiations move ahead very slowly, the United Kingdom and the rest of the countries of the European Union do not yet face concrete trade barriers. Expectations, however, that the separation cannot be stopped, lead to strategic re-orientation among businesses as it seems certain that the United Kingdom will no longer enjoy trade privileges when it leaves the European Union.
The positive mood can change anytime because of unforeseen events in the international arena. All institutions that characterize the post-World War II era are under fire, beginning with NATO and UNO to the role of the World Bank and the International Monetary Fund. China flexes it muscles and challenges the role of the United States, while the U.S. under Trump moves to a more isolationist position. This way, contradictions emerge because the U.S. government continues an active military involvement in many parts of the world and is in confrontations with Russia, Iran, and North Korea besides its numerous regional military engagements.
Economic growth is strong in all major industrialized countries. From the third quarter of 2016 to the third quarter of 2017, the annual growth rate of the gross domestic product increased from 1.9 to 2.2 percent in the United States; from 2.0 to 2.3 in the Euro Area; and from 1.0 to 1.7 in Japan, while the gross rate in the United Kingdom continued to grow at a rate of 2.1 in this period as before. This economic expansion comes along with fixed capital investments. The rate of growth of gross fixed capital formation in the United States rose from 1.6 percent to 2.2 percent; from 2.0 to 3.0 percent in Japan; and from 1.6 to 3.3 percent in the United Kingdom.
Low and falling unemployment accompanies the strong economic growth in the industrialized countries. In the United States, the unemployment rate fell from 4.9 to 4.3 percent; in Japan from 3.0 to 2.8 percent; and in the United Kingdom from 4.8 percent to 4.2 percent. Except for Germany’s unemployment rate of 3.6 percent, the overall rate of unemployment in the Euro Area remains high although here, too, it has come down.
Not much changes have been taking place recently as to the external sector of the economies of the industrialized countries. The United States continues having current account deficits, although at a lower level of 2.1 percent of GDP by the third quarter of 2017. Japan increased its surplus from 3.6 percent to 4.3 percent in the third quarter of 2017 compared to the year before, while the current account surplus in the Euro Area rose from 3.6 percent to 4.3 percent. Exchange rates have been largely steady with the exception of the euro, whose exchange rate of against the U.S. dollar has been on the rise since the end of 2016.
Prices and Money
Apart from the United Kingdom, where the price inflation rate rose from 1.1 percent in November 2016 to 2.65 percent per year after, the price levels in the other industrialized countries have been relatively stable with a rise from 2.14 to 2.35 percent in the United States; from 0.02 to 0.03 percent in Japan, and a fall from 1.23 to 0.95 percent in the Euro Area. Except for the United Kingdom, where the growth rate of narrow money shrank drastically from 9.5 percent to 4.8 percent, the M1 growth rate declined moderately in the United States from 8.2 percent to 6.6 percent, and in Japan from 8.4 percent to 5.7 percent. In the Euro Area there was a slight expansion from 6.7 percent to 6.9 percent from November 2016 to November 2017.
Nobody seems to care as Venezuela runs to the bottom. Devastated by hyperinflation, the country has defaulted on some of its foreign debt. As foreign exchange reserves have fallen below ten billion US-dollar, the country faces the risk of no longer being able to import vital goods. The country’s balance of trade is negative, foreign funding has dried up, and reserves have dwindled. Since 2010, the Venezuelan currency has devalued from two bolivars to ten bolivars. Yet even at this rate, the Venezuelan bolivar is still overvalued.
Argentina has a new government, and the economy is slowly recovering. While the official inflation rate is still 25 percent annually, economic growth has picked up from the negative rates in 2016 and has reached an annual rate of 4.2 percent in the second half of 2017. Unemployment is still high but has come down from 9.3 percent in 2016 to 8.3 percent in July 2017. The Argentinean currency continues to weaken and has fallen from around 15 pesos in 2016 to close to 19 pesos per dollar.
Brazil is slowly recovering from its deep crisis. From a negative annual growth rate of 5.6 percent at the beginning of 2016, economic growth became positive in early 2017 but has recently fallen back again. A series of severe political uncertainties weigh heavily on the economy. While real investment has remained weak, the stock market has risen drastically from a temporary low of 60 000 BOVESPA points in 2017 to 81 000 points in early 2018. From a high of close to 14 percent in March 2017, the unemployment rate has fallen to 12 percent by the end of the past year.
China’s economic growth goes on. Only slightly lower than in the past, the annual growth rate stands currently at 6.8 percent. From around seven yuan to the dollar in January 2017, the Chinese currency has slightly appreciated to 6.4 yuan to the dollar in January 2018. Chinese export performance remains strong. In December 2017, China’s trade surplus widened sharply to 55 billion US-dollars. China’s current account has stabilized around a surplus of about two percent of its gross domestic product.
Russia suffers from severe sanctions imposed by the Western countries. Nevertheless, economic growth has somewhat recovered from a prolonged recession and reached positive territory in 2017. Since the beginning of last year, the unemployment rate has come down from 5.6 to 5.1 percent, while the inflation rate fell from five percent in January 2017 to 2.5 percent at the end of the year.