For most of February, the UK has been in the heady position of boasting the world’s fastest growing major advanced economy. First estimates from the Office for National Statistics, published at the back end of January, suggested 2% economic growth for 2016.
But as more data becomes available, estimates of economic activity are revised. So it came to pass that on Wednesday, the UK figure was revised down to 1.8%. And, just one day later, Germany leapfrogged the UK to top the G7 growth league by publishing 2016 growth of 1.9%.
Germany also posted its highest budget surplus since reunification in 1991, an enviable €23.7 billion. The figure was boosted by record low unemployment and very cheap debt finance, a happy by-product of the European Central Bank’s extensive bond-buying programme. Angela Merkel is committed to maintaining a balanced budget as a cornerstone of German economic policy. However, one country’s surplus is another country’s deficit, and critics suggest that Berlin should spend more to boost domestic demand. That, in theory, should boost imports from abroad, providing a boost to the world economy and alleviating global economic imbalances.
Interesting times
The US is edging closer to another hike in interest rates. Minutes released on Wednesday from the Federal Reserve’s latest policy meeting pointed to continuing strong economic growth, signalling at least one rate hike in the not-too-distant future. Nevertheless Janet Yellen, the Fed chair, acknowledged the uncertainty surrounding the Trump administration’s ambitious policy proposals. Investors believe a combination of tax cuts and infrastructure spending will spur inflation, and markets are pricing in two or three rate hikes before the end of 2017. Despite this hawkish outlook the S&P 500 index rose 0.54%.
Banks battle on
Britain’s biggest banks all reported results this week, serving up a mixed selection. Lloyds Banking Group surprised investors, announcing its highest profit since the financial crisis, having overcome the travails of the PPI mis-selling scandal. Pre-tax profits of £4.2 billion were slightly below analyst expectations, but represented a major increase on last year’s figure. The surge in profits allowed the bank to give something back to investors in the form of a £2.2 billion special dividend.
Profits are also on the up at Barclays, which announced a tripling of pre-tax profits compared to the same time last year.
However, making a profit remains an elusive concept to Royal Bank of Scotland. It reported its ninth consecutive annual loss, totalling £7 billion due to mis-selling and conduct charges. Meanwhile, HSBC unveiled a sharp fall in full-year earnings, leading to 6% fall in its share price on Tuesday.
The FTSE 100 index fell 0.40% by Thursday’s close, while the FTSE World Europe ex UK index rose in value by 0.64%.
No short back and sides for Greece
One of the country’s biggest creditors, the International Monetary Fund (IMF) appeared to soften its stance this week. After apparently gelling with Angela Merkel at a meeting in Berlin, Christine Lagarde, the head of the IMF, told the German media: “At the present time, no haircut is needed” – meaning she does not believe the country has reached the stage where its debt must be written off by creditors. Instead, she advocated extensive reform for Greek pensions, income and tax. Athens could be ahead of the game with these requests: on Monday it agreed to attempt to boost its coffers and therefore its ability to repay the debt by implementing significant changes after its current bailout package ends in two years’ time.
And finally…
At the Palais de Tokyo modern art museum in Paris, French artist Abraham Poincheval is taking on an unusual challenge – he plans to seal himself inside a limestone boulder and stay there for a week. His performance is apparently an attempt to “find out what the world is” and shouldn’t be taken for granite. Of quartz, there can be no guarantee he’ll last the full seven days inside the rock. After all, nothing’s written in stone.
