› News for March 12.

News for March 12.

An economic slowdown is predicted for Italy.

European Commission experts think that the Italian budget would not contribute to the economic growth and would make Italy as a source of risks for the whole Eurozone. Repubblica paper published that information on Thursday. The report of the economic situation in Italy will be discussed in the European Commission next Wednesday. A recession has been noted at the end of 2018, after what the European Commission lowered its forecast for the Italian economic growth to 0.2% from 1.2%. The slowdown might interfere with the Italian government to lower the budget deficit to 2.4% from the gross domestic product. That target was agreed by Giuseppe Conte’s government with Brussels last year. The Italian government predicts that economic growth might reach a level of 1.5% in 2019. Finance Minister Giovanni Tria thinks that in case of the budget income decline, the deficit might be filled reserves of 2 billion euros, created in 2018. Vice-Premier Minister Matteo Salvini stated that the positive effect from government’s measures is just a question of time.

IMF: Banks risk to lose 350 billion dollars due to the cyber attacks.

The International Monetary Fund stated that the global banking system could lose 350 billion dollars as a result of cyber attacks. IMF Managing Director Christine Lagarde reportedly noted that a more effective banking regulation might help to avoid those troubles. She insists on creating a more stable and secure measures to control and protect the global banking system from those types of threats. Lagarde also noted that the financial sector improvement is becoming more crucial than ever in order to reach goals set for the 21st century earlier, such as a higher level of employment, green economy’s growth and good level of life for everyone. The IMF head said that the key target for achieving those goals is to transform the financial sector in something that is related to social interests in a more sustainable manner. All of the interested parties have to be involved in that process. Bank clients, employees, shareholders, local societies and next generations. She also declared that the target is to make the financial sector more secure and trustful, which will require a combination of better regulation, technology innovations and wider responsibility. One of the concerns for modern bankers is the fact that some of the financial corporations are getting big and complicated, which are called ‘too big to fail’. For example, the share of the five largest US banks reached 45% of the total cost of bank assets compared to 40% in 2007. Meantime, the leading experts and economists call on the further increase of shareholders funding besides the current requirement to the capital. Banks could withstand potential financial shocks in that way. However, some of the experts are not so sure about increasing the shareholders funding as that might lead to several negative side effects such as credit volume decline.

Brexit without the hard scenario.

What is the negative scenario for the Brexit? The most objective definition of a negative scenario is related to an assumption that there will be no deal signed in the upcoming 18 days. However, more and more experts call a negative scenario as an option of no-deal hard Brexit. Therefore, postponing the divorce deadline is not a negative scenario any more, being a more supportive factor for the British Pound rather than a negative outcome. JP Morgan analysts have rather optimistic views on the Brexit saga. The deal likelihood is around 55%, according to them, while postponing the deal could have a probability of 20%. The second referendum is less likely though, JP Morgan analysts asses that option at around 15% level. The general election might happen with 10% chances, including an outcome when Britons will cancel their historic decision to leave the European Union. A real positive fundamental factor is that all negative scenarios, including re-elections and the second referendum, are less likely. All that points to the GBP support. Any, even insignificant confirmation of that assumption, makes the fundamental support even stronger for the Pound. As a result, we might get a moderate but sustainable growth of the Sterling across the board versus major currencies. In that case, Sterling’s crash would be so crucial for the economic growth in the United Kingdom. Actually, the current strengthening might become a safety bag. There are several examples in the history when a currency sinks down before a huge spike, however, it’s almost impossible to make an exact forecast.

The Chinese economy’s battery is discharged.

The Chinese economy continues slowing down for the fifth month in a row, ignoring the record-high level of money emission by the Chinese People’s Bank, which had injected more than 4.6 billion dollars to the financial system, hoping to launch the stalled economic motor. The Manufacturing Purchase Managers Index was again below the mark of 50 points in February, appearing in the decline zone. The indicator had lowered by 0.3 points compared to January’s reading, while its headline figure - 49.2 - became the lowest since February 2016. One of the key reasons for that weak performance was related to the exports decline, which used to accelerate economic growth since 1990 thanks to cheap goods, which flooded the developed countries market. The export orders index declined to 45.2 points from 46.9 points earlier on the back of trade wars and import tariffs which threatened almost half of Chinese goods imported to the United States. The service index followed the manufacturing one with the reading of 50.7 points compared to 51.5 points earlier, which is hard to explain in the light of huge injections from the government in January. According to People’s Bank data, the total new loans volume reached the level of 3.23 trillion yuan in the first month of the year. The wider indicator of total social funding, taking into account the shadow banking and masked credit products jumped to 4.64 trillion yuan in one month, overperforming the previous month’s figure for 150%. The Chinese economy had gotten a loan doping of more than 685 billion US dollars, which is comparable to the yearly budget if such countries as Saudi Arabia. The published data is completely insane as the government jumped for 5% of the GDP this month, which had never noticed since World War II.

 The Chinese Economy
Source:CHINA US Focus

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