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LGT Navigator: Worries at the International Monetary Fund

October 16, 2019

In its latest economic report, the IMF has noticeably lowered the global growth outlook. Global economic momentum has slowed sharply and remains weak for the time being. In particular industrial activity has declined on a broad basis and is now at the same level as in the financial crisis. Rising trade tensions and geopolitical risks are increasing uncertainty about the future of global trade and international cooperation. In concrete terms, this is having a negative impact on companies' investment plans and the mood on the financial markets. The considerable easing of international monetary policy is currently cushioning the weakening of the economy. Without this accommodation, the situation in many countries would be even worse.

On a country level, the prospects for Germany in particular are poor. The IMF expects growth of +0.5% for 2019 and +1.2% for 2020 (previously +1.7%). The figures illustrate Germany's dependence on its export markets. Globally, growth is forecast to reach +3.0% in 2019, the lowest level since 2008/09 and a downgrade of -0.3% from the IMF's April 2019 World Economic Outlook. It is to accelerate to +3.4% by 2020, mainly due to a forecast improvement in economic performance in a number of emerging markets in Latin America, the Middle East and Europe's emerging and developing economies. However, given the uncertainty about the outlook for several of these countries, a projected slowdown in China and the United States, and high downside risks, global activity may slow significantly. To prevent such a slowdown, the IMF recommends reducing trade tensions, reviving multilateral cooperation and, where necessary, stimulating economic activity through public investment. Monetary policy, on the other hand, should not be the sole support.

The Brexit clock is ticking

The British pound has recovered +5% since its recent low against the US dollar and is now at a five-month high, driven by rare signals of progress on the treatment of the intra-Irish border. London and Brussels have indeed clarified many differences over the last 48 hours, Bloomberg said. An agreement with the European Union seems to be drawing ever closer. Nevertheless, this is only the first hurdle for British Prime Minister Johnson, as he still has to convince various wings of British politics of the new treaty. The most important stakeholders are the Northern Irish Democratic Unionist Party (DUP), which supports Johnson's minority government, and his own conservative party. The initial situation seems to have improved. The prime minister wants to put the new deal to vote next Saturday in a special meeting of the House of Commons so that all deadlines can be met. However, the Johnson government has repeatedly reiterated that the United Kingdom will leave the European Union on 31 October – just fifteen days away – either way. In this regard high-ranking EU officials have sent contradictory signals. Some said it was feasible, others thought it was unrealistic.

Euro area: bad omens accumulate

In its new October report, the Mannheim Centre for European Economic Research (ZEW) left no doubt that investor sentiment in the euro zone is in the doldrums. After a frighteningly contractionary value of economic expectations of -43.6 points in August and -22.4 points in September, the value fell again to -23.5 points. This corresponds to the lows of 2009 and 2011/12 and confirms that market participants expect an economic downturn. Fears are rising that individual countries of the monetary union will slide into recession.



Economic Indicators October 16

MEZ Country Indicator Last
10:00 Italy Industrial orders (y/y) -1.0%
10:30 UK Consumer prices (y/y) 1.7%
11:00 Euro area Consumer prices (y/y) 0.9%
14:30 USA Retail sales (m/m) 0.4%

Earnings Calendar October 16

Country Corporate Period
USA Alcoa Q3
Netherlands ASML Q3
USA Bank of America Q3
USA Intel Q3
Switzerland Temenos Q3
Switzerland Roche Q3



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Core Personal Consumption Expenditure
MEZCountryIndicatorLast08:00DERetail Sales (y/y)-1.7%08:45FRConsumer Prices EU Harmonized (y/y)1.4%09:00ESGDP (y/y)2.4%09:55DEUnemployment Rate5.0%11:00EUGDP (y/y)1.2%11:00EUCore Consumer Prices (y/y)1.1%11:00EUUnemployment Rate7.5%11:00ITConsumer Prices EU Harmonized (y/y)0.8%12:00ITGDP (q/q)0.12%14:15USADP Employment Report102k20:00USFederal Funds Target Rate2.5%
08:00DEExports (m/m)-0.89%08:00DEImports (m/m)0.49%08:45FRIndustrial Production (y/y)0.11%10:00ITIndustrial Production (y/y)-1.80%10:30GBIndustrial Production (y/y)-0.80%14:30USConsumer Prices (y/y)1.81%14:30USInitial Job Claims (thousands)219.45
USAAlcoaQ3NetherlandsASMLQ3USABank of AmericaQ3USAIntelQ3SwitzerlandTemenosQ3