Morning Brief – Thursday 21st

Global Economic Ranking over the years 2000 to 2023

While we are all clear as to the size of the two largest economies ranked by their Purchasing Power Parity, once we get beyond them let’s be honest while we can normally hazard a guess at the largest of the next largest world economies, we are hazy once it comes to where they have moved in the past 20 years.

A chart recently produced by the IMF is instructive: India is moving inexorably towards the number 3 slot-as described two weeks ago by SGM-FX; Japan moves down to 4, Germany down to 5 and then Indonesia moves up to 6 from 13!! France moves under the leadership of Le petit Napoleon, Emmanuel Macron himself from 6 to 10-hardly a testament to Gallic Growth and the UK broadly static moves up from 10 to 9 one position ahead of France.

Recently in from behind German lines

SGM-FX’s own Gunner Graham has recently returned from deep inside the German border in preparation for the UEFA Europa League Round of 16 Draw which as we all know takes place at 1300CET on Friday 22-02-19 at the House of European Football in Nyon, Switzerland.

Despite it being a mission undertaken to check out the health of the German economy, management suspect it was rather more predicated by Arsenal’s prospects following the draw. The following is relevant to both the Eurozone and also to UK plc given the proximity and trading volumes between the two:

Following the recent German zero growth release which just keeps Germany out of technically being in recession, it looks as if that figure will in fact need to be revised down and will consequently be minus. The German economy  has been driven by exports over the past 10 years and much of those exports go to China in the shape of high grade engineering products. Germany’s economy is consequently closely linked to that of China and recently the Chinese state run economic stimulus programme has slowed right down. At the same time the USA is set to announce new tariffs on EU car exports which will not only be a blow to VW, BMW and Mercedes but also to Deutschland AG.

So with German industrial production hurting a lot, it would normally be time for the Central Bank to stimulate the economy by cutting interest rates. However as we all know, the European Central Bank has already done that and interest rates are negative; so other than sending them further negative which prompts the question as to how much more can be done in that direction, interest rate management as an economic stimulant is not an option for Germany and therefore the rest of Europe will suffer given Germany’s position as the largest European economy.

Once the German growth number is revised downwards, expect the EUR to weaken further against the USD and GBP.

Never mind the match prospects, travelling Arsenal fans will have to decide whether a weak post Brexit GBP or a weak no growth Germany will win out in GBP/EUR!

Markets

Yesterday the ZAR was jolted by the news that the South African government was to inject $5 Billion over the next 3 years into troubled Eskom the state electricity supplier. As described last week Eskom is symptomatic of the challenges faced by the new President of SA who was elected on the anti corruption ticket.

Gold continues its climb-up a further 0,2% to $1343. GBP remains firm despite further convulsions yesterday in the UK Parliament with the resignation of 3 Conservative MPs.

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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