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US Headlines Special 3: The Outcome
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14 March 2016 |
Once heralded for her stance on immigration, it appears that a U-turn is occurring within the German political arena as Germans according to Bloomberg ‘turn to a Trump-Style Politics in challenge to Merkel.’ At the forefront of the opposition to Merkel is the Alternative for Germany party who advocate the use of fire arms in order to enforce the borders. Whilst this may appear radical to some, Bloomberg explains how the party are becoming increasingly more popular winning ‘seats in all three states that voted and boosting its representation to half of Germany’s 16 local assemblies.’
Meanwhile, as government opposition to free flowing immigration in Germany heightens, in the UK the Telegraph, in its Sunday issue, called for the government to release the ‘full facts’ regarding immigration. This comes following the comparison between the official figures and the number of people who have registered for National Insurance numbers. The Telegraph highlights that the approximate 1.25 million person difference has failed to be explained by the government and calls therefore for more information. Hence, this information is essential in order to provide the British public with the greatest understanding when deciding whether to vote in or out.
Continuing on the topic of the UK in or out vote, Justice Secretary Michael Gove has argued this week that through voting leave the UK will be able to “take back control of our borders we can have a more humane immigration policy that helps those in genuine need whilst managing the flow of people into the country” reports Sky News. Nonetheless, he fails to elaborate further on the matter and instead sketches over the rest of his points. It will be interesting to see how these points sit and develop in the weeks to come.
It was suspected, and on Thursday Mario Draghi, the head of the ECB, put the motion into action as he ‘cut interest rates across the Eurozone to zero’ reports the Guardian. Draghi believes that these measures will be enough to boost the Eurozone economy however warns that the single-currency bloc will be faced with deflation in months to come. Nonetheless, whilst the Guardian argues that these measures come as a bit of a surprise as it was ‘well beyond what investors had been expecting’, as it sees the lowest interest rates in history, Draghi tries to reassure the world and it appears to for now have done exactly that. Hence, the ECB’s interest rate action together with the overall stimulus has relieved some of the panic in the markets. Bloomberg reports how ‘a gauge of German inflation expectations climbed to the highest level since January this week.’ Nonetheless, the cut in interest rate was not the only support the ECB offered, it also ‘announced a 20 billion-euro monthly increase in quantitative easing that for the first time opened the door to purchases of corporate bonds.’
The day is approaching; this Wednesday George Osborne will release his annual budget. However, the Guardian suggests that Osborne is going to tread carefully due to the upcoming vote regarding the EU. Hence, in the last six months, Osborne’s popularity with the British public has severely deteriorated because of ‘his changes to tax credits and more recently over the slowdown in the economy’ explains the Guardian. The key thing is that despite the Chancellor’s 2020 target of balanced books, this budget is likely to be tame as Osborne takes into consideration the wider political impact it could have- a backlash could lead to a leave vote.
In light of the upcoming budget, it is important to consider the current economic climate within the UK. The BBC reports this week that the ‘British Chambers of Commerce (BCC) has downgraded its growth forecast for the UK economy, blaming “global headwinds and uncertainty.”’ Living in an ever more globalised world, it is interesting to think about whether the UK economy is weak or strong considering it is so reliant on the rest of the world’s trade and economic strengths. With the BCC blaming the global economy, it has revised this year’s growth figure to 2.2% from 2.5%. Hence, whilst the consumer economy and services industry are expected to drive the majority of this growth explains the BBC, Adam Marr as well as others have called for support in this week’s budget for ‘forward road, rail and digital infrastructure projects, and to resist burdening companies with more costs and taxes.’ It appears that in order to maintain its strength the UK needs to get more balanced growth as well as balanced books. As these calls are made for support to certain industries, the UK’s inflation rate should not be forgotten; it is currently sitting at its lowest in 16 years. What does this mean? Well, the Bank of England are unlikely to reduce interest rates further but keep them stable as Reuters explains that economists now predict that a rise in interest rates will not be witnessed until the first quarter of 2017. Will this be enough considering low interest rates have not been able to protect the UK economy from the recent oil price crash?
On a business front this week innovation is key for US car manufacturers General Motors and Ford as the BBC reports how they have ‘announced strategies geared at taking on the tech world’s growing influence in the car industry.’ The BBC explains that the two car manufacturers are pursuing this through acquisition; General Motors are buying self-driving firm, Cruise Automation, whilst Ford will expand its production by setting up in Silicon Valley. These two moves come as the power of electrical motors are increasing posing an overall threat to the market in future years.
Meanwhile rumours have emerged that Chinese insurance group Anbang is going to buy Strategic Hotels & Resorts Inc. for $6.5 billion. Reuters explains that this move indicates further the desire from the Chinese to break into the US real estate market. If completed, this sale with see Anbang acquire properties and companies including the Four Seasons Washington. This comes following the interesting prediction that merger and acquisition activity will increase in 2016 as the ‘hotel industry is set for more consolidation’ indicates Reuters. These moves come as hotel groups try and gain a greater bargaining power with travel agents. Amy McPherson, Marriot Europe Head, explains to Reuters the impact of this move, ‘In terms of how you're dealing with intermediary partners, consolidation gives you strength that a company half or a quarter of the size doesn't have.’ City Careers will continue to watch and see whether this prediction is right and whether we will see another year of hotel firms merging.
It has been hitting the headlines for weeks and unfortunately the outlook has remained the same; economists, politicians and businesses continue to fear the economic slowdown in China and its impact on their national economies. The BBC reports how production from January and February was at its lowest level since 2008 and its overall exports for February decreased by 25.4% this year since 2015. This slowdown comes after the China has opted ‘to refocus its economy from investment and export-led growth to consumer spending’ explains the BBC. Whilst these figures are new, nothing appears to be changing; so the question is what are nations doing across the world to counter the ‘China effect’, are they acting or are they just observing and waiting for the worst?
In the meantime, the US import market is also deteriorating. Reuters explains how this is not a new trend but follows a continuing trend from the last eight months. Nonetheless, John Ryding, the chief economist at RDQ Economics in New York, argues that despite the recent reports and the last eight months, these times are behind the US. Reuters sheds light on this statement when suggesting that ‘the dollar’s appreciation loses some steam after the greenback gained about 20 percent against the currencies of the United States’ main trading partners between June 2014 and December 2015.’ Therefore, if the US maintains its recovery and China’s economy plummets, what will the impact be on the global economy?
Is the oil crisis about to cease? Reporting the International Energy Agency comments, the BCB highlight that the oil crisis may be stabilising as the slowdown in output from both the US as well as ‘less dramatic’ increase in supply from Iran has allowed for prices to be somewhat maintained. Nonetheless, the information provided by Reuters this week suggests that celebrations and optimism should not begin too quickly. Since the lifting of the Iran sanctions 4 million barrels of oil have been sold to Europe, ‘that equates to only around five days’ worth of sales at the levels of pre-2012 when European buyers were purchasing as much as 800,000 barrels per day (bpd) from the country.’ Therefore, if demand increases and output from the US also rises, will we have another oil crisis on our hands, the likely answer is yes. However, with the current pessimism over the global economic outlook, demand is unlikely to be rising anytime soon.