pound and UK financial assets will be volatile in the run-up to Britain’s first
December general election since 1923 – and will remain so in the event of
another hung parliament.
is the warning from Nigel Green, CEO and founder of deVere Group, one of the
world’s largest independent financial advisory organisations, as Labour
announces it is now backing the government’s bill for a December election,
regardless of the date.
Green comments: “This is a critical stage in the slow-moving, damaging,
torturous Brexit saga.
the pound and UK financial assets to be increasingly volatile in the run-up to
the general election, given the wide-ranging set of outcomes.
most detrimental of these outcomes for sterling, UK financial assets and the
wider British economy, include another hung parliament or a victory for
Jeremy Corbyn’s Labour party.”
continues: “Boris Johnson’s intention to secure a majority within the House of
Commons is by no means guaranteed.
Brexit Party will use the fact that Mr Johnson did not deliver Brexit by
October 31 – something on which he staked his whole premiership.
Remain vote could also be split between Labour, the Lib Dems, the Greens and
fragmentation on this scale has never happened before in the UK.
a hung parliament looks like an alarming possibility, meaning there could be no
majority to quickly and smoothly resolve the Brexit chaos.
grinding deadlock continue, the UK economy would still
haemorrhage investment and confidence. The fallout of Brexit has cost the
UK three and a half years of lost opportunity and many, many tens of billions
of pounds. This would only intensify with another hung parliament.”
adds: “Meanwhile Jeremy Corbyn’s Labour party will campaign on the most
radical, left-wing manifesto in more than a generation.
he win this election, his anti free-market policies – such as the
re-nationalisation of industries from utilities to railways to postal services,
and the forcing of companies to give 10% of their shares to staff – plus
his high-tax policies, including a possible wealth tax, will spook the financial
markets, hit long-term sustainable growth of the British economy, put more
pressure on UK financial assets, and lead to a significant sell-off of the
Mr Green concludes: “The general election is set to be the most contentious and uncertain in generations. Investors now need to protect and build their wealth and assets by ensuring they are properly diversified across asset classes, sectors, currencies and regions.”
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement
● One in eight share bad news with family
and friends via text message
Brits find money matters
the most uncomfortable conversation topic
New research has revealed just how
reluctant Brits are to have face-to-face conversations, with many choosing to
deliver bad news via technology.
The study, conducted by savings and mortgage provider The Nottingham, asked over 2,000 Brits about the conversations they find most difficult and the methods they use to avoid face-to-face interaction.
It found that almost one in eight (13%)
Brits share bad news with friends and family via text or instant message. Women
are more likely than men to choose such technology for these conversations (14%
vs 10%), but nearly half (45%) of the nation don’t deliver bad news in person.
Age is also a factor, with the younger
generations finding face-to-face conversations more uncomfortable than older
groups. Three in five of those aged between 25-34 (60%) use technology to share
bad news, compared to just a third (33%) of over 55s
The conversations Brits find most
difficult tend to be around finances. Respondents were asked to rank a series
of conversations on their level of discomfort and the topic of saving was rated
the most taboo, closely followed by mortgages.
In fact, Brits feel more comfortable
telling friends and family members about health problems and relationship
issues than they do about their financial situation.
The conversations Brits find most
But it’s not just awkward topics that the
nation is shirking, but face-to-face conversations in general. The research
found that around half of Brits (49%) have a conversation in person with their
best friend on a weekly basis, while more than one in six (17%) speak to their
siblings face-to-face less than once a month.
While this reluctance to talk in person,
especially about finances, is found across the nation, it is more common in
some UK cities than others. The people of Bristol find money talk the most
challenging, with its residents finding the subjects of mortgages and savings
more difficult to discuss than those in any other city.
At the other end of the scale, the
people of Norwich are the most comfortable with financial conversations with
friends and family.
The top five cities which find financial
conversations with friends and family the most and least comfortable are:
Discussing ‘Money Matters’ across the UK
Most Comfortable Cities
Least Comfortable Cities
The study found when Brits discuss
finances; they feel happiest doing so with their partners. However, while friends
and parents were tied in second place in terms of preferred listeners, young
Brits (aged 25-34) would rather talk about money with their mates.
Tina Hayton Banks, Director of Member
Services at The Nottingham, said: “It can be really difficult to discuss
finances with loved ones and our research has highlighted just how
uncomfortable Brits find such conversations, especially face-to-face. Through
their reluctance to talk in person, younger generations risk falling through
‘the advice gap’. Particularly when it comes to finances, there’s only so much
you can find out online before you need to talk to an expert around your
specific circumstances and goals.”
“At The Nottingham, we value the art of
conversation and pride ourselves on talking to our members about their finances
whether in person at one of our branches or using technology, such as speaking
to a mortgage adviser face-to-face over video. These conversations can be
really valuable to customers, sometimes helping them understand certain products
better or saving them money by getting them a better interest rate or mortgage
deal. So when it comes to money matters, it really does pay to talk.”
The Nottingham is a top-ten building society and estate agency operating online and via a network of over 60 branches across 10 counties. The Nottingham offers a broad range of building society services such as mortgages and savings, as well as whole-of-market mortgage advice provided by Nottingham Mortgage Services. Founded in 1849, The Nottingham is a mutual building society owned by its members with a long and proud history of doing the right thing and helping communities in its heartland prosper.
 Survey of 2,006 UK adults conducted by The Leadership Factor in October 2019 on behalf of Nottingham Building Society.
No matter what linked to money moving in and out of business is a financial risk. Financial risk management is a way of knowing and handling financial risks. These are the risks your company may face now or in the future. The key to any financial risk management policy is the business plan. A plan that will show workers what they can and cannot do. Also, choices need to escalate, and who will bear the overall duty for any risk that may arise.
Financial Risk Management and its Importance in an Organization
Risks may come from external and internal sources. External threats are those that are not under the direct control of executives. These risks include interest rates, market rates, state issues, and so on. Internal risks include breach of data or non-compliance, among many others.
Risk management is vital in business as, without it, a company cannot set goals for the future. If a firm sets goals without taking risks into account, they will likely lose track as any of these risks reaches their place. Many groups have added risk control units to their team. The team aims to identify risks and develop plans to protect against these risks. They are also bound to move all members of the company to join in these strategies. The same, the risk control team is liable for valuing all risks while fixing the ones that are critical for the business. Risk control ensures that the firm allows only those risks that will aid it in giving its primary objectives. It is likely if they keep all other risks under control.
Financial Risk Management – How to Implement
Companies manage financial risk in many ways. It is a process that depends on the company doing and on the level of risk it takes. The company managers must know and assess the risks. Also, they should decide how they will manage it.
Some steps in the financial risk management process are:
Identify exposure of risks: Risk control begins with the recognition of business risks and their sources. A high point to start is the company’s budget. It gives insight into the liquidity, debt, interest rate risk, and currency risk. It also grants info about weak stock prices faced by the company.
Exposure analysis: The next step is to identify or set numerical value for the known risks. Analysts tend to use regression and standard deviation methods. These are ways to measure a company’s exposure to various risk factors. These tools cover how diverse data points differ from average or mean.
Make a “smart” choice: After analyzing the risk’s roots, decide how to move with this report. This decision-making rule depends on many factors. E.g., company goals, market context, risk appetite, and if the cost of mitigation favors the risk drop.
Financial risk management terms business on how to deal with risks if they arise. It helps to learn many ways and means for managing these risks. It also gives the company the courage to execute and form a useful control plan to prevent or reduce losses.
How could a further three months of uncertainty affect investment and small business?
Leading finance experts discuss the impact of a further Brexit delay.
This morning, President of the European council Donald Tusk tweeted: ‘The EU27 has agreed that it will accept the UK’s request for a #Brexit flextension until 31 January 2020. The decision is expected to be formalised through a written procedure.’
Tusk made the announcement after the 27 countries that will remain in the European Union when Britain leaves agreed on Monday to accept London’s request for a Brexit extension.
But how might another three months of uncertainty and debate affect the vital community of small businesses and the investors that support them? Luke Davis, CEO and Founder of IW Capital, discusses the impact of the outcome on investment:
“Small businesses in the UK are undoubtedly hoping for increased certainty over the Brexit deal and leaving date. Once the deal is confirmed the sentiment to push on with business will really be able to take off. As entrepreneurs and investors look to capitalise on new opportunities that are bound to exist after Brexit. Over the last year or so, we have seen a concerted effort to get on with business, regardless of Brexit and the eventual outcome.
One thing that we need to ensure is that entrepreneurs and investors looking to start or support a small business are not put off by the turmoil in Parliament. At IW Capital, we have experienced record deal flow and buoyant investor confidence. What Brexit ends up looking like will not affect the fantastic range of innovative, growing SMEs we work with that are likely to drive our private sector forward.”
Jenny Tooth OBE, CEO of the UK Business Angels Association, shared her views on what the delay could mean for regional businesses:
“As negotiations continue to drag on and eat into the transition period, which was put in place to help business prepare for the imminent loss of EU support, we are at risk of running out of time to plan and make changes. Funding for SMEs in the regions has been somewhat forgotten about recently. This will subsequently impact regional SMEs more than larger businesses that can take the hit, or areas such as London or the Golden Triangle which receive the majority of domestic investment.
The potential loss of investment from the continent including the European Regional Development Fund, Horizon 2020 and the Jeremie fund could create a huge investment gap in UK. This is concerning not only for the loss of EU money, but the risk that Government support for finance to replace this EU funding may take time to have an impact on the ground.”
If you would be interested in speaking to Luke or Jenny or if you have any questions at all, please don’t hesitate to get in touch.
James Lester Senior Communications Executive 42Bruton
London, 27th October 2019 – Money20/20 USA today played host to the launch of the latest Banking Circle insight paper. ‘Pay, Set, Match! Payment services for SMEs – Jump-starting a virtuous digital payment circle’, uncovers the challenges and opportunities for payment providers serving SMEs.
Banking Circle, the
ground-breaking provider of business banking infrastructure, commissioned
MagnaCarta Communications to produce a series of research papers investigating
how financial institutions of all types can each play a role in increasing SME
financial inclusion. This insight paper is the latest in the series, following
the initial white paper which launched in May 2019 and a Banking Innovations
insight paper published in September 2019.
Anders la Cour,
Co-founder and Chief Executive Officer of Banking Circle commented: “Increasing
financial inclusion is core to every Banking Circle solution we build. As such,
we regularly speak to businesses of all sizes and types, working in all regions
and industries, to gain invaluable insights into the current challenges and
where we can tackle existing pain points. This Payments-focused insight paper
includes input from a range of players in the market, each identifying key
challenges and opportunities for payment providers.
“The unique insights
we have gained in producing this paper are invaluable for Banking Circle but
also for the wider industry and will help us work together to build an
ecosystem of efficient and cost-effective solutions to meet the needs of real
businesses. The current offering is not serving SMEs effectively enough, but
meaningful change will only be possible when every player in the market knows
and fulfils its specific role, working in collaboration and not competition
with other providers.”
full report, ‘Pay, Set, Match! Payment
services for SMEs – Jump-starting a virtuous digital payment circle’, is
available to download at bankingcircle.com/whitepapers and
video interviews can be found here.
About Banking Circle
Banking Circle is a
next-generation provider of mission-critical financial services infrastructure
leading the rise of a super-correspondent banking network. Banking Circle
empowers banks and financial tech businesses to support customers’ trading
ambitions – domestic and global – whilst reducing risk and the operational cost
of transactions. Banking Circle solutions are
increasing financial inclusion by helping thousands of businesses transact
across borders in a way that was previously not possible.
In 2013 Saxo Bank formed a
new entity, Saxo Payments A/S, with the purpose of using Saxo Bank’s core
capabilities within the non-cash payments market. In October 2015 the company
launched the Banking Circle – its ground-breaking product for payments and FX
to the Financial Tech industry. In October 2017, the company launched its new
identity for Banking Circle, to reflect its position as a financial utility servicing
Financial Tech businesses and banks. In September 2018, Banking Circle was
acquired by EQT VIII and EQT Ventures, in partnership with Banking Circle’s
Domiciled in the
European Union, Banking Circle specialises in providing global banking services
including accounts, payments, lending and foreign exchange services to
financial institutions, including FinTechs, banks, acquirers, payment service
providers, FX brokers, money transfer businesses, e-wallets, and alternative
For further information and interviews please contact
the Banking Circle Press Office:
Although the sales process is an integral
part of any business, it is no secret that it is complicated. It needs
insistence, a plan, and consent of human psychology and it often changes as
your business grows. But it can be tough to find out how to enhance your sales,
except to make more calls or find more potential clients. We spoke with sales
experts to get the best tips on how to improve the sales process.
Tips on how to improve sales – for the sales team
Slice down your sale goals
Viewing your annual or monthly sales goals
can be devastating. Break large targets into flexible pieces. E.g., you might
decide to perform specific tasks every day: find two new business prospects,
make five phone calls, and make one new meeting. Design a search plan that
defines how you will make new leads.
Inverse the sales funnel
It makes sense to follow a regular sales
funnel as part of your sales strategy. If you find that nothing is shaking, try
working opposed. Rather than focusing on your income goal, focus on client
service. Talk to your clients and find out what they need from you. Develop a sales plan by cutting each step into feasible
Use emotional aptitude to make client
Selling is both knowing who you are selling
to and selling a product. The bond you build with your clients can be a
critical factor in deciding if you are selling or not. Emotional aptitude is
informing of its own and emotions of other people.
Tips on how to improve
sales – for sales manager
Improve sales strategies
A good sales plan outlines how you will
bring new clients. And also how you will create or expand links with potential
clients. Besides, how you will continue to sell your product or service to
When making your strategy, you should:
Define your target audience and create your ideal customer profile
When you create your first sales strategy,
you can also create a plan listing what to do in the event of an error.
Examples of these cases are a loss of a notable sales agent or a mismatch of
your sales target. Your skilled plan should indicate who will be told of the
problem and how. Also, consider the steps you and your team can take to fix the
issue. In some cases, avoid repeating these errors in the future.
Manage your sales team effectively
Your sales strategy is as good as your team. So, you should develop motivated and well-trained sales agents. The best way to do this is to learn about the people in the group. As a manager, you must know what drives them as an individual.
During the sales training, be honest with your reps regarding goals, notices, and ways to assess their efficacy. A manager should plan meetings (monthly) with each seller to find out what they need and where they struggle.
The most awaited international business conference is coming. Join InvestPro UAE Dubai 2019 Conference and Workshop, which is held on November 13-14 at the Oberoi Dubai hotel.
InvestPro UAE Dubai 2019 is the largest and most significant conference on investment migration, wealth management and asset protection in the Middle East, which will gather over 300 attendees, a multitude of industry leaders, financial advisors and international service providers who will share first-hand information on the latest developments in residence and citizenship planning, taxation, investment opportunities.
InvestPro conference program:
in technology companies, Awad Capital (UAE)
Immigration by investment to USA (EB5), Mona Shah
& Associate (USA)
insurance solutions and tailored risk management programs for
Ultra-High-Net-Worth families, Sophos Advisors (USA)
UK Immigration Options vs. Global Alternatives: Case Studies, Beyond Residence &Citizenship (UK)
Navigating Market Risk with Alternative Assets, MMG
Finance LLC (Panama)
The Caribbean is Dead: The U.S. is the Future for
International Banking, Stern International Bank (USA)
as international economic center, MCIT (Cyprus)
Obtaining a higher education degree in Cyprus as a way
to integrate into economic, social and political systems worldwide, Aurora
New opportunities in Georgia: Simple
registration/Operations. Easy banking. Low taxes, Hualing Kutaisi Free
Industrial Zone (Georgia)
Business in Russia: Create opportunities and Navigate
business risks, Interfax (Russia)
Substance and the Migration of Companies to Dubai, Swiss
ILC Management Services (UAE)
see the final conference program by the link.
Why attend InvestPro?
25+ Speakers – CEOs and Owners of leading companies of
More than 16 hours of practical material and insider
More than 26 workshop tables and opportunity to
300+ potential customers, clients, and new partners
for 2 days networking in the heart of Dubai;
Representatives of more than 30 countries: Europe, CIS
and Baltic region, Asia, the United States, and Canada;
Business networking with your clients and partners
during the cocktails at the end of each day, coffee breaks and lunches;
The luxurious venue, perfect conference organization
and the highest professional level of participants.
Companies from UAE: the participation for 1 Top
Manager from the company is complimentary until 01.11.19 with your unique promo code CFIco.
The cost for
delegates from other countries, as well as companies that are located in UAE
and engaged in consulting in the field of investment abroad, the purchase of
real estate abroad, asset management, opening an account in a foreign bank, registration
of a company abroad – EUR 300.
The future of the IoT or Internet of Things extends to change as state of affairs change. All progress of today connects to IoT. The IoT is here, and it is making steady progress in many industries. We can expect more than 75 billion devices connected over the Internet of Things by 2025. It takes some aim to get into the IoT, but taking some expert advice will boost your business. When you are ready, be adapted to make the next moves with technology.
Future of IoT is an opportunity for a business IoT tactics usually base on a small local axis and cloud-based access to knowing the benefits. They range from primary use cases, e.g., machine learning and artificial intelligence. Some of the aids of the IoT need a transition to a partial cloud. For this, you will have to plan for that as well.
Real IoT: It exists – there are a lot of chances and data for those concerned.
Viable IoT: The actual cases of the company make it more realistic.
Design reason can help ease the start-up process.
Lastly, it comes to taking useful tips on how to reach this.
IoT merger with blockchain and AI
IoT is not the expertise of change meant to be alone at the same time. It is in its place, arising among emerging techs and IoT. Cloud, blockchain and applied science are the keys to causing market value and growing finance. We defeat the main hurdles, such as data analytics issues, bandwidth, and costs. Yet, we are entering to see early waves where firms can charge higher than expenses in IoT.
IoT and machine learning groups give the mind that
allows them to apply IoT business tools to the info they offer. Rather than
refer to data producers. Small computing lets it scale by ranging the cloud
function to the edge. It helps fix cost, bandwidth, and safety issues. IoT will
base on endless growth, integration, and the growth of these new techs.
It is to gain the desired results at the industry
level. Fog Computers, AI solutions, and IoT have the potency to exceed their planned
business. It is why a future-thinking company met on integrating them.
Based on clients and form, IoT can be set into three parts
for the user adds connected devices such as smart laptops, watches, phones,
cars. Moreover, count fun systems and other related devices.
adds things like medical devices, asset control, and tracking devices.
covers things like related flow meters, water waste systems, drains screens,
and electric meters. It also adds building a robot and other related smart
systems and tools.
The future of IoT is vast. Rising network agility, unified AI, and the ability to deploy on a full scale will revive the growth of the Business Internet. It is not only to put billions of devices together but also to take the aid of a large amount of valuable data.
Car manufacture on the continent riddled with looming trade war seems headed for a dead-end.
Remember the good old days when the biggest challenges the European car industry faced were the oil crisis, the rise of Japanese carmakers, and disgruntled unions? Today, the car industry is fighting for its very survival as the mobility sector is transformed by new technologies.
One can forgive European carmakers for being a bit distracted by shorter-term concerns like the threat of US tariffs, slumping Chinese demand, and stricter emission standards.
Europe and its car industry are already dealing with US steel and aluminium tariffs imposed in 2018 as part of the trade war. In May 2019, the US Department of Commerce announced that foreign cars and car parts were a threat to US national security. Tariffs of up to 25 percent could be imposed, with a decision to be made within 180 days of the announcement. Negotiations behind closed doors must be frantic. EU governments are sit-ting down to agree on a unified, post-European elections approach. German car executives have already been to the US to try to reason with President Donald Trump.
Escalating trade war that involves vehicle companies
An escalating trade war would be disastrous not just because of the direct impact on demand, but also because the European car industry is a global supply chain. Cars and parts are made around the world and assembled in various countries. Tariffs will drive up costs, and may cause carmakers to relocate their production centres.
Brexit is a similar problem but on a smaller scale — and with less certainty. Already several carmakers have closed or reduced production in Britain. Honda is closing its Swindon plant, Nissan is moving some future production back to Japan, and even Dyson has moved its electric car subsidiary to Singapore.
European car makers are also reeling from a slump in car sales in China, recording 11 months of de-creasing sales by this May. Many carmakers are desperate for an improvement in the second half of the year, but there is little optimism for a quick turnaround. China became the biggest car market in 2010, and in 2017 had 35 percent of the passenger car market; the EU was the next-biggest at 21 percent, with the US following at nine percent. The slump is a major cause for concern.
To take advantage of the growing market and to meet Chinese government requirements, many Europe-an carmakers have set-up production in China, mostly with joint ventures. Volkswagen produces close to 40 percent of its total production in China, Peugeot (PSA) close to 20 percent.
European carmakers have bet big on China trying to navigate the trade war — and now they are facing the costly prospect of stricter emission regulations as well. In the wake of the 2015 “Dieselgate” scandal, European policymakers are determined to cut emissions from motor vehicles. They are proposing a 15 percent cut in average CO2 emissions for cars produced in Europe by 2025, and 35 percent by 2030. Many cities have announced future bans and restrictions on diesel vehicles, including Paris, Hamburg, Berlin, and London. This is forcing a costly transition on European carmakers — but in forcing them from diesel to electric, it may be a strategic blessing in disguise.
All these pressing concerns represent serious challenges, but European carmakers must also look ahead to other existential challenges.
Vehicle companies in 2030
By 2030, 30 percent of a car’s value will be in its software, but Europe is lacking the relevant expertise. The biggest software advances are being made in Autonomous Vehicles (AV), followed by increased connectivity. Self-driving cars will communicate with others to manage traffic, while passengers benefit from a range of new services and entertainment. High-end cars already have around four times more lines of code than a F-35 fighter jet — twice that of the CERN Large Hadron Collider.
The leaders in AV are US tech firms, notably Google and Apple, as well as Tesla and the Chinese firm Baidu. European carmakers are behind the pack, but attempting to catch-up through acquisitions and strategic alliances. Ford and Volkswagen have made an agreement to share AV technology; Fiat-Chrysler have aligned themselves to Google; Audi, BMW and Daimler (Mercedes-Benz) have bought a digital mapping company. Daimler has also been working with Uber; BMW with Intel and Israeli firm Mobileye, and Renault-Nissan has partnered with Microsoft.
Technology is changing how cars are used and could impact the trade war. Ridesharing will challenge the concept of the private car — and Europe is trailing here also. In 2017 it was estimated that 338 million people used ridesharing ser-vices like Uber, Lyft and China’s Didi Chuxin. That growth could become exponential when companies introduce AVs dedicated to ridesharing. By 2030 it is estimated that one in 10 cars will be shared. Euro-pean carmakers are scrambling to join forces with former competitors and ridesharing platforms to make up for lost ground: BMW and Daimler have merged their ride-sharing divisions, and Volvo is working with Uber.
Trade war: electrification
Another big technological disruptor to European carmakers is electrification. Electric cars are not new, but recent improvements in batteries, drivetrains and public charging infrastructure have started to make electric cars a viable alternative. China is the leader here, with 400 electric car options on the market; in Europe there are six. The biggest electric carmaker in the world is China’s BYD. China, Japan, and South Korea are leaders in battery production. Tesla has a Gigafactory in Nevada, and one under construction near Shanghai.
Europe is currently at the mercy of Asian suppliers. Volkswagen and BMW have announced plans to produce their own batteries, in co-operation with Goldman Sachs, Ikea, and a small Swedish battery pro-ducer Northvolt — but the first examples will not be ready until 2022.
The transition to electric cars will also have an impact on the workforce. Electric cars are less complicat-ed, requiring fewer workers. A typical electric engine has just 200 components; a diesel engine has 1400. By 2030, as a result, it is estimated that 300,000 manufacturing jobs will be lost in Europe. More will be lost indirectly. The industry currently employs 13.3 million people, 3.4 million of them in manufacturing.
European carmakers are feeling the pressure. The CEO of Volkswagen, Herbert Diess, recently said that the European car industry could mirror the demise of that in Detroit. That seems an extreme scenario, as European carmakers are now making swift, bold decisions. The industry has a long history, and is de-termined to have a bright future.
Will growth continue to slow, or will Europe fall into recession as global economic risks overtake it? Whatever the result, rather than being a distraction from politics, the economy will probably intensify the political challenges.
Economic Growth continues to slow
The Euro Area is heading for a second straight year of slowing economic growth. In 2017, GDP growth was at 2.4%, while 2018 is expected to be around 2%. In 2019, the IMF has forecast 1.9% (World Economic Outlook, Oct 2018), while the World Bank has forecast 1.6% in 2019, 1.5% in 2020, and 1.3% in 2021 (Global Economic Prospects, Jan 2019).
Some key countries will fare worse. Germany and Italy recorded negative growth in the third quarter of 2018, with notable decreases in industrial production. In contrast, EU members in Eastern Europe are experiencing strong growth.
Slower growth in the Euro Area is not in itself cause for concern. Despite the downward trend and negative growth in Germany and Italy, the forecasts represent continued solid economic growth. The underlying fundamentals are robust for most countries: inflation is under control, consumer spending is healthy, and Euro Area unemployment is at 10-year lows. The Euro Area looks set to add to the five straight years of growth since 2014.
Europe’s slowing growth must be seen in the context of increasing global risks to economic growth. These include the risk of a US recession,
aggressive US trade policies, and the risks from further tightening by the US Federal Reserve. If any of these risks are realised, Europe, particularly the Euro Area, may fall into recession.
The US economy appears very strong with low inflation and a strong labour market, but the stock market correction from August 2018, and the flattening (and sometimes inverting) yield curve for US treasuries suggests that the US markets are predicting slower growth. Many market-watchers are spooked by the possibility of a recession in 2019 or 2020. A US recession may become a self-fulfilling prophecy.
US trade policies entered a new era in 2018 with the March tariff on steel and aluminium, renegotiation of NAFTA (now USMCA), and the trade skirmish with China. The US has demonstrated that it will play hard on trades issues, even with traditional allies such as Canada and Europe. The steel and aluminium tariffs have had a negative impact on European exports. More tariffs cannot be ruled out.
Europe also needs to be prepared for any collateral damage from a potential trade war between the US and China. Comments after the G20 meeting in Buenos Aires gave hope of a resolution but subsequent reports suggest that negotiations will be complex, particularly as the US leverages a stronger hand with probable slower growth in China.
Another key global risk is continued monetary tightening by the US Federal Reserve in 2019, and the ensuing risk of financial contagion for, and from, emerging markets. Last year marked the long-feared end of cheap liquidity in emerging markets. As the US Federal Reserve tightened liquidity, countries like Argentina and Turkey were put into a tail-spin by markets. Advanced economies, including those in the Euro Area, remain vigilant for any potential financial contagion from emerging markets. Fed chair Jerome Powell has since tried to tone down any hawkish sentiment, and will proceed with more care. The world will be watching the Fed even more closely in 2019.
What can Europe do about recession?
If any of these global risks are realised and the Euro Area falls toward recession, what can Europe do? The ECB and national policymakers appear to have few working levers to stimulate growth. The official ECB interest rate has been below zero since 2014, while the ECB capped Quantitative Easing at the end of 2018. The ECB’s rate would thus need to rely on tools at the margins such as a new round of Targeted Longer-Term Refinancing Operations (TLTROs): discounted multi-year loans to banks. Perhaps the ECB’s biggest remaining lever to mitigate any recession is to do nothing, refraining from raising interest rates in 2019.
Unlike 2007 and 2008, many European governments (including France, Italy, and Spain) have few fiscal buffers to deal with any potential recession in 2019 or 2020. Italy has a public debt to GDP ratio of 133%, Spain 98.8%, and France 97.7% (latest figures are from 2017). Countries such as Germany and the Netherlands do have fiscal buffers, but they alone cannot mitigate a Euro Area-wide recession.
The lack of fiscal buffers will probably feed back into domestic political pressures and anti-EU rhetoric. In the event of a recession, countries with little fiscal space will be tempted to increase their fiscal spending beyond comfortable levels, which will incur the ire of the ECB, and the more fiscally conservative countries in the EU. Local leaders may then deflect this by stirring up anti-EU sentiment – a familiar path. As the economy re-emerges as a key focus, the tensions between many governments, like the new government in Italy, and the EU will probably intensify.
Need for productivity growth to get out of Europe Recession
Beyond mitigating the next recession, what Europe (and all advanced economies) really need is a new wave of structural reforms to reignite productivity-led economic growth. This includes Labour market reforms to increase flexibility and participation, as well as productivity through better vocational education and technology.
In 2017, French President Emmanuel Macron introduced labour market reforms. These included changes to the funding of vocational education and the capping of awards for workplace disputes settled in court. These have already had a positive economic impact, according to many commentators, and will help France through any recession. Macron however has resisted German-style Hartz labour flexibility reforms (part of Schroder’s 2010 Agenda).
Hartz reform supporters claim that Germany’s economic growth in the 2000s was largely because of the reforms, which reduced unemployment benefits, removed incentives for early retirement, and increased labour-market flexibility. Opponents claim the reforms had little impact, and that Germany instead.
Whatever its role in strengthening the German economy, the German electorate did not take kindly to the Hartz labour reforms. and replaced the Schroder-led SPD with the Merkel-led CDU. European governments face a similar challenge today. Economies need a new wave of structural reforms, but they are unlikely to be popular in the face of slowing growth. One of the key election-promises of the new Italian government was the removal of labour market reforms by the previous government, designed to increase labour market flexibility. It seems that economic events are set to make European politics even more interesting in 2019.