“Deutsche Bank expects the German economy to contract this quarter after recent business surveys pointed to souring moods at companies and their worsening expectations for new orders.
““The start of the German economy into 2019 has been a major disappointment so far,” Deutsche Bank economists including Sebastian Becker wrote in a report on Tuesday. “The development of several key cyclical indicators is telling us that the German economy is drifting towards recession right now.”
“The warning from Germany’s biggest bank comes just days after Bundesbank President Jens Weidmann said economic weakness carried into 2019 and will result in significantly lower growth than predicted just a few weeks ago. The government in Berlin also recently cut its 2019 outlook almost in half and IHS Markit’s January survey showed manufacturing in Germany shrank for the first time in four years.”
“A manufacturing and export-led slump in Italy’s economy spilled into services at the start of the year, aggravating an already fragile economic situation in the euro area.
“Business activity among Italian services providers shrank in January and forced companies to reduce headcount for the first time in more than two years, a Purchasing Managers’ Index showed on Tuesday.”
“The UK’s services firms saw activity almost flatline in January as firms reported mounting Brexit fears from clients. The Purchasing Managers’ Index came in at 50.1, the weakest since the aftermath of the 2016 Brexit vote and only just above the 50 mark that separates growth from contraction.
“Combined with weak recent surveys from construction and manufacturing, analysts said the the UK economy likely stalled in early 2019.”
“As if the bad loan crisis at Indian banks wasn’t alarming enough, there is a ticking time bomb that can spark another crisis for the industry.
“Loans worth Rs3.5 lakh crore ($48.88 billion) have not been recognised by banks in India as non-performing assets (NPAs) and they run the risk of turning sour, India Ratings, a part of the global ratings agency Fitch, said in a report on Feb. 05.”
“Prayers for a sudden return to dovish monetary policies have been answered, and now investors are living with the aftermath: a world awash with $8.6 trillion in negative-yielding debt. That’s one reason money managers are wading once more into the fringes of fixed-income markets across the globe.
“Consider the action over the past week: Serial defaulter Ecuador managed to sell $1 billion in new bonds even as the government is in talks for International Monetary Fund financing. Crisis-prone Greece received blockbuster orders for its 2.5 billion-euro ($2.9 billion) sale. And the decidedly frontier republic of Uzbekistan, encouraged by risk-on markets, is meeting investors for a debut international offering.”
“A funny thing happens when you depend on borrowing from the future (debt) to fund growth today: the new debt no longer boosts growth, as the returns on additional debt are increasingly marginal.
“This leads to what I term debt exhaustion: lenders can no longer find creditworthy borrowers, borrowers either don’t want more debt or can’t afford more debt, and the cost and risk of the additional debt far outweigh the meager gains.”
“What we know for sure is that the global financial system continues to expand, with global debt pushing $200tn. Better financial regulation may have helped contain the corresponding growth in risk, but it is not necessarily shrinking.
“For example, although big banks do seem to have less risk “on the books”, regulators must work hard to monitor risky debt that has migrated to the shadow financial system and can inflate quite quickly, as we learned the hard way in 2008.”
“The global economy continued to slow in early 2019, according to the latest JPMorgan-IHS Markit Purchasing Managers Composite Output Index. “Growth in manufacturing new orders slumped to near-stagnation, while new work at service providers rose at the weakest pace since September 2016,” IHS Marhit said.
“New export orders also contracted for a second consecutive month, driven by weakening demand and continued trade tensions between the United State and China.”