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The Euler Hermes’ Weekly Export Risk Outlook provides weekly information updates on economic and geopolitical events impacting world trade conditions. This week's outlook, Dec. 20, 2012, looks at Japanese election results, U.S. Quantitative Easing, Eurozone manufacturing PMI, and fewer German start-ups.
Below are just some of the headlines found within the report; for more information, see the PDF of the report.
Figure of the Week: USD110 > Barrel Price of Brent Oil (+6.8 Percent Y/Y)
Japan: Election results
The Liberal Democratic Party (LDP), led by Shinzo Abe, won an absolute majority (60.4 percent) in general elections for the lower house in parliament. This should allow the government to pass legislation in the lower house and the right-of-centre coalition LDP-Komeito holds more than two-thirds of seats in the upper chamber. The outgoing ruling party, the Democratic Party of Japan (DPJ), won only 57 seats out of 480. The next stage in the electoral timetable is elections for the six-year term upper house, which are scheduled for July 2013. The LDP can be expected to push for the adoption of further expansionary fiscal and monetary policies to combat deflation and to support growth. However, the government will have limited leeway on the fiscal side, given the high public debt-GDP ratio (in excess of 200 percent). Meanwhile, the BoJ announced more quantitative easing. Expect GDP growth of +0.8 percent in 2013.
US: Further QE
The Fed announced unprecedented actions to stimulate the economy whereby, in addition to the USD40 billion in mortgage-backed securities it is buying each month (Quantitative Easing, QE3), it will now start buying USD45 billion in Treasuries each month (QE4). As each round of QE becomes less effective, the latest measures are unlikely to help boost the economy markedly, but they do raise significant inflation risks. The Fed also changed its guidance as to when it may increase interest rates from “at least mid-2015” to hard targets, such as when unemployment falls below 6.5 percent and the rate of inflation moves above 2.5 percent.
In the meantime, November retail sales and industrial production rebounded after being adversely affected by Hurricane Sandy in October. Core CPI inflation was 1.9 percent y/y in November.
Eurozone: Manufacturing PMI
The flash EZ composite PMI increased moderately in December to 47.3, up for the second consecutive month and signaling a slowdown in the contraction of output. The PMI for both manufacturing and services improved—although very slightly for the industrial sector—by 0.1pp to 46.3 and 1.1pp to 47.8, respectively. Regionally, for the first time in the last eight months, the German composite PMI increased above the 50 threshold, suggesting that activity returned to expansion territory. However, the French index continues to point to sluggish growth in Q4, although at a lower rate of contraction (45 against 44.3 in November).
The outlook remains weak as surveys continue to reveal contraction in new orders and deterioration in employment intentions.
Germany: Fewer Start-Ups
The number of start-ups of larger businesses that provide a marked contribution to the overall economy totaled 103,000 from January to September 2012. According to data from the Federal Statistical Office, that number was down -6.3 percent y/y.
In addition, newly-formed smaller businesses recorded an even sharper contraction, to 190,700 or 15.3 percent y/y. In the same period, start-ups of part-time businesses were stable at around 183,000. Business de-registrations in the first three quarters of this year show that closures of large businesses were +3.9 percent y/y, totaling 91,900, and that for part-time farms they were +2.7 percent y/y (111,500), although closures of small businesses were -1.9 percent y/y (215,700).