Between a pro-European government in France and early discussions of a Große Koalition in Germany, there is political momentum on both sides of the Rhine for a stronger Europe. Building on the principle of subsidiarity, and focusing on cost-effective institutional breakthroughs, France and Germany could drive the European project further with ten initiatives in five reform areas.
The two biggest economies in Europe have been the subject of various wrong analyses and common-knowledge truisms. This report sets out to refute seven such misconceptions. These are: a higher French birth means potential growth is higher than in Germany; labor productivity is higher in France than in Germany because of France’s higher number of unemployed; Fiscal austerity is stronger in Germany than in France; France lost the competitiveness battle to Germany; German SMEs are performing better than French ones; France is Germany's main trading partner; and Because it grows faster, Germany should invest more than France.
On 24 September, this year of European elections will reach its next climax: the election of a new German government. These elections are taking place against the backdrop of a pronounced boom in the German economy.
The ECB has to make a move towards normalization. Soft tapering – though not our own core scenario – is an option. It consists of stopping or reducing reinvestments of principal payments before reducing Quantitative Easing (QE). Why choose different sequencing from the Fed?
Global growth is accelerating (at last), yet not all engines are in sync. A disappointing U.S., reassuring Europe and stabilizing Emerging markets create good – not great – momentum. We forecast GDP to grow +2.9% in 2017 and 2018, unchanged from our last scenario. It will be the seventh consecutive year below 3%.
There has been a noticeable increase in destabilizing political events in recent years. This begs the question whether we are dealing with an unfortunate accumulation of political accidents, or whether there is something systemic going on.
Last year, the global economy proved fairly resilient in the face of unexpected shocks. Neither concerns about a slowdown in the Chinese economy nor major political surprises – including the result of the Brexit referendum in June and the outcome of the US presidential elections in November – managed to knock the global economy off its moderate growth path.
Elections in France, Germany and the Netherlands, the move of the US President-elect Donald Trump into the Oval Office, the start of Brexit negotiations – given the elevated uncertainty hanging over political and economic developments next year, there is really only one thing that is certain: 2017 will be an eventful and interesting year.
One of the main headaches that has been plaguing financial markets in recent months is the possibility of further devaluation of the Chinese yuan. It would make Chinese exports even more competitive and is therefore seen as a risk that reinforces deflationary pressures on world markets.
Since last summer, concerns about the strength of the global recovery have been rising again. While the focus was initially on emerging markets, in particular China, more recent worries have centered around the US.