An Almost Flattened Yield Curve, Or the Calm Before the Storm
The best GDP growth rate of the past four years is not enough to scare away the ghosts of the recession. The increase in the demand for cyclical consumer goods contrasts with a profound deceleration in the investment of private inventories. After the Federal Reserve increased interest rates to 1.50%, both the effective rate of federal funds and the LIBOR price continues to grow as the IOR increases. The contraction of the QE continues. Inflation remains close to the expectations of US monetary authorities. Even though loan delinquency rates are decreasing and the price of stocks are increasing, the yield curve continues to flatten. The dollar outlook for 2018 is of a currency that depreciates against its largest competitors in the world.
Read MoreMexico: in the Midst of Uncertainty Over the Upcoming Elections and NAFTA
In 2017, Mexico grew 2.1% according to preliminary data from the National Institute of Statistics and Geography (INEGI); another year for which the country shows mediocre growth. Industrial activity has remained low, partly due to poor mining activity and to the uncertainty created by the renegotiation of the North American Free Trade Agreement (NAFTA).
Unemployment levels remain at historically low levels. However, inflations reached its highest point in the twenty-first century, reaching an annual rate of 6.77%. Inflation has diminished the real income of Mexican workers, reflected in the drop in vehicle sales. Along with the restrictive monetary policy, short-term interest rates are at their highest levels since 2009.
The two big questions troubling the Mexican economy are: who will win the elections in July? And, what will happen to NAFTA? The fact that Andres Manuel López Obrador heads the polls generates concern among businessmen. The pessimism that accompanies the NAFTA renegotiations are making many expect the worst outcome. The Mexican industry most affected by a break in NAFTA would be the automobile sector. However, thanks to the most-favored-nation principle, even a break with NAFTA would lead to an average tariff of 5% for Mexican products entering the United States.
Read MoreAre Spanish Banks Ready to Help Economic Growth Through Credit Expansion?
The Spanish economy maintains a good performance at the macroeconomic level. Growth also remains stable. However, employment data for the fourth quarter is not great, even though other indicators signal strength. The public deficit continues to fall at a good pace at around 3% of GDP over the last 12 months. Credit, which until now had been contracting, could begin to help growth in the next quarters.
Read MoreThe Year The Eurozone Got Back On Track
Once again, the Eurozone showed its potential in 2017: it had a healthy, sustainable growth and exceeded everyone’s expectations. Manufacturing and industry are boosting this growth, along with a growing external demand. The reforms implemented due to the crisis are paying off, and the recent labor reforms seem promising. Although the ECB’s inflation target has not been reached, inflation continues to rise. Credit to households is the only driving force since credit to government and companies is falling behind, even though it is not weakening the economic growth. There are no signs of liquidity problems or signs of a financial crisis. 2018 is thought to be a decisive year for the ECB’s QE policy, the end of Greece’s bail-out, and the beginning of new debates such as the banking union.
Read MoreEconomic growth and financial risk go hand in hand
As economic activity stabilized in most sectors, in the third quarter we have detected indicators that could signal the future sources of risk for the Chinese economy. Consumer and producer prices continue the same trends shown in recent months. On the other hand, prices in the real estate sector show a slowdown and even a decrease. The balance sheets of the Central Bank of China continue to expand at a good pace. Furthermore, the appreciation of the yuan has helped moderate capital outflows from China. Should it continue this way, it could reach a neutral point and could return to the path of stability in the financial system. In this report we corrected errors in certain indicators and introduced a new one that indicates Chinese financial stability: loans under stress over total reserves available to the country.
Read MoreWith the ongoing economic recovery, will the ECB start tapering QE?
Economic growth shows a growing trend, signaling a stable economic recovery in the Eurozone along with an optimistic manufacturing sector that does not seem to depend on credit. Inflation lightly borders ECB objectives, possibly indicating that QE policies will continue in the short-term even though these policies have not shown significant results in their objectives. Credit to businesses has not recovered, but there is a significant rebound in credit to households. Nevertheless, businesses are investing more. Credit to government continues to decrease, because of deficit control in most Eurozone countries. There are no signs of liquidity problems.
Read MoreThe Spanish Economy Faces the Secessionist Crackdown with Solid Growth
The Spanish economy is performing well at the macroeconomic level. Growth slightly slowed down in the third quarter but is now showing positive signs, anticipating a good start for the fourth quarter. Public deficit decreases and is expected to close the year within the set goals. On a negative note, there is a deterioration of foreign direct investment and a stagnation in the growth of corporate financing.
Read MoreMexico continues to grow by inertia
The Mexican economy registered a growth of 2.2% this quarter. A rate that follows the expectations set at the beginning of the year. It is not a growth rate worthy of any celebration, but it does calm the doubts held about the Mexican economy at the end of last year.
Unemployment levels fall to levels of 3.5% and informal employment continues its downward trend. As mentioned in our previous report inflation has been high, influencing the real wages of workers.
Banxico has taken the benchmark interest rate to 7%, its highest level since 2008. However, it seems that Banxico will stop the rate hikes that started in December 2015. Inflation will close above target, but August seems to be the peak month of inflation and it is expected to start normalizing.
Read MoreBetween Low Prices and New Competitors: Should we Produce Robusta or Arabica?
Between a growing demand for coffee in emerging economies and a strong competition in production, the main players are changing along with prices and production decisions. Climate continues to play an important role in determining prices and the exchange rate has become ever more relevant. Low prices have affected everyone, but those who survived has technified, taking advantage of the booming years.
Read MoreLower Taxes Without Lower Spending Equal Higher Deficits
The US economy experienced a weak first quarter, but recovered in the second quarter. GDP rose at its fastest pace in two years. However, many troubling signs have not disappeared: the slowdown in credit growth, weak investment in inventories, a car industry heading for a rough patch, a further flattening of the yield curve and many other worrisome developments. With stock markets at record highs, what will happen in the last quarter of 2017?
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