Higher state spending helps German economy avoid recession in Q4

Higher state spending helped Germany avoid a recession in the fourth quarter, data showed on Friday, as exports failed to provide impetus for a slowing economy.
Detailed data released by the Federal Statistics Office confirmed the economy stagnated in the fourth quarter after a contraction in the previous month.
A breakdown of the data showed that state spending had risen by 1.6 percent, contributing 0.3 percentage points to economic growth.
Exports and imports rose by 0.7 percent each on the quarter, resulting in net trade making no contribution.
Private consumption, which has been supporting the economy as exports weaken on trade frictions and bottlenecks in new car registrations, grew by a disappointing 0.2 percent and its contribution to growth was as little as 0.1 percentage points.
VP Bank chief economist Thomas Gitzel said stricter emissions rules that have hindered sales in the automotive sector had weighed on both exports and private consumption.
“We expect a catch-up effect in the current quarter,” he wrote in a note.
Germany’s dependence on exports for growth makes it particularly vulnerable to the trade disputes between the United States and both China and the European Union.
“Where do we go from here? What happens in the international arena will decide the prosperity and adversity of the German economy,” Gitzel said. “A resolution to the trade conflict will certainly leave a positive mark.”

Euro zone core inflation edges higher in Jan 2019

Euro zone headline consumer inflation slowed slightly in January because of a sharp deceleration of energy price growth, but core inflation watched closely by the European Central Bank in policy decisions edged slightly higher, data showed on Friday.
The European Union’s statistics office Eurostat said consumer prices in the 19 countries sharing the euro fell 1.0 percent month-on-month in January for a 1.4 percent year-on-year rise, in line with previous estimates and market expectations.
Energy prices, which fell 0.9 percent on the month and were 2.7 percent higher than in January 2018, slowed sharply from a 5.5 percent year-on-year growth in December and 9.1 percent increase in November.
Without the volatile components of energy and unprocessed food, or what the ECB calls core inflation, prices fell 1.2 percent month-on-month for a 1.2 percent year-on-year increase, accelerating from 1.1 percent in annual terms in December.
Eurostat said the biggest upward push for consumer prices came from services, which contributed 0.7 percentage point to the overall year-on-year result, followed by food, alcohol and tobacco with 0.36 points and energy with 0.26 percentage points.
European Central Bank policymakers took a gloomy view of the euro zone economy at their last policy meeting and asked for swift preparations for giving banks more long-term loans, minutes of the meeting showed.

With growth unexpectedly weak for the third straight quarter, policymakers are increasingly concerned that global uncertainty is derailing the euro zone’s recovery, undoing years of work by the ECB to kickstart the bloc.
Although the ECB just ended a 2.6 trillion euro bond purchase scheme to stimulate growth, it is now preparing the ground for giving more multi-year, cheap loans to banks to ensure they keep credit flowing to the economy even during the slowdown.

German business morale sinks for a sixth month in February

German business morale fell for the sixth straight month in February, a survey showed on Friday, reflecting concern among corporate executives that trade hostilities will worsen a slowdown in Europe’s largest economy. The Munich-based Ifo economic institute said its business climate index fell to 98.5, the lowest since December 2014 and lower than a consensus forecast of 99.0.
“The German economy remains weak,” Ifo President Clemens Fuest said in a statement. The institute said the index as well as other indicators pointed to a growth rate of 0.2 percent in the first quarter.
The outlook for the export-dependent German economy has been clouded by trade frictions and the risk of Britain leaving the European Union next month without a deal.
Economists said the slide of the Ifo index suggested companies remained worried that the German economy would suffer more damage if the United States failed to resolve its trade disputes with both China and the European Union.
Of particular concern to German businesses is US President Donald Trump’s threat to impose tariffs on cars and auto parts imported from the EU. That would particularly hurt Germany’s carmakers, who export more than two-thirds of their vehicles.
“The closer we get to Brexit and a decision on US tariffs on cars, the more those issues will weigh on the confidence of companies,” said Andreas Scheuerle at DekaBank. “The small waves are getting bigger. In this stormy sea, companies are reefing their sails.”
CAR BLOCKADE Data published on Friday highlighted the importance of the auto sector. Detailed data confirmed economic growth was unchanged in the fourth quarter, and economists said bottlenecks in new car registrations contributed to the stagnation.
The data showed that exports, imports, investments, state spending and private consumption had all risen on the quarter.
“The growth components actually show an economy that is running on almost all cylinders,” ING Diba economist Carsten Brzeski wrote in a note. “With none of the traditional growth components being negative, the question arises why the economy is still on the brink of a recession? The answer is clear: cars are still blocking the road to a rebound.”
A breakdown of the data showed that state spending had risen by 1.6 percent, contributing 0.3 percentage points to economic growth. Exports and imports each rose by 0.7 percent in the quarter, so in net trade made no contribution.
Private consumption, which has been supporting the economy as exports weaken on trade frictions and bottlenecks in new car registrations, grew by a disappointing 0.2 percent and its contribution to growth was as little as 0.1 percentage points.
Stricter emissions rules that have hindered auto sales had weighed on both exports and private consumption, VP Bank chief economist Thomas Gitzel said. “We expect a catch-up effect in the current quarter,” he wrote in a note.
Germany’s dependence on exports for growth makes it particularly vulnerable to the trade disputes.
“Where do we go from here? What happens in the international arena will decide the prosperity and adversity of the German economy,” Gitzel said. “A resolution to the trade conflict will certainly leave a positive mark.”

Digital remittances

Pakistan is one of the largest markets for international remittance and WorldRemit continues to focus on it by expanding its operations. Following are the edited excerpts of a conversation with Country Director, WorldRemit:
 
BR Research: What do remittance market players compete on – do they compete on rates, speed, availability of outlets, security of transfer, or other services
Today, the majority of the money transfer industry in Pakistan is still ‘offline’ – through money transfer agents, friends or relatives or through other third parties such as hawala. Similarly, a large portion of remittances globally are sent offline in cash at high street agents, who may not even be employees of the money transfer company.

For WorldRemit, I would say that what distinguishes us from other players within the remittance space is the mission to support financial inclusion by offering a variety of methods to receive money, with or without a bank account.
For customers sending to Pakistan, where almost 80 percent of the population do not have access to a transaction account, we offer bank transfer, cash pickup, airtime top-up and mobile money. Mobile money enables people to receive money directly to their mobile phones quickly, easily and transparently.
Moreover, unlike other digital upstarts, we genuinely serve the whole world. We operate across 6,500 corridors and 80 percent of our revenue is generated outside the UK. We’re the leading sender of international remittances to mobile money services with access to more than 150 million mobile money accounts worldwide.
Also, we bank on our cashless model on the sending side, which makes us more secure, as it provides a digital footprint to adhere with global compliance requirements. Pre-transaction, our systems analyses countless data points looking for suspicious user behaviour and check users against Know-Your-Customer databases. Our transactions leave a digital audit trail for tracking unusual patterns, spotting potential fraud and ensuring efficient data sourcing to fulfill regulatory requirements.
 What are the prospects of increasing remittances through blockchain channel? Will this channel only divert formal remittance from one channel to another or will it divert informal into formal?
 In an industry which remains largely offline with the use of informal channels, we want to use technology to digitise the process and make it easier and cheaper for people to send and receive money. When exploring new payment technologies such as blockchain, our test is to see whether it will make sending money a better experience for the customers.
Blockchain is a technology we will continue to watch; however, we think mobile money is a more attractive solution for people looking to switch from informal to formal channels. This is because mobile money enables recipients to receive money without an internet connection or bank account.
How can you bring remittance costs down in Pakistan? Which corridor offers the lowest cost?
 According to the World Bank, the average global cost of sending money to Pakistan is 5.38 percent. The top five most expensive corridors are Singapore, Canada, Saudi Arabia, Norway and finally Australia. Digital remittances can save both remittance senders and receivers’ time and money as they cut out expensive third parties such as couriers and traditional brick and mortar agents. The overall global cost of remittances is 7 percent but on average, digital remittances cost 4 percent.
 Have you been approached by the SBP survey? What do you think about the survey?
The SBP survey is a fantastic initiative as it has the potential to use feedback to improve financial services for the Pakistani diasporas sending money back home. We are always exploring new ways to make it easier for people to send money back home to their loved ones.
 What is your estimate of the informal remittance market size in Pakistan – can you give a breakup of the estimated informal remittance corridor-wise?
As informal remittances are unrecorded; it is difficult to estimate the volumes sent to Pakistan.
The World Bank estimates that remittances to Pakistan hit an all-time high of over $20 billion in 2018, representing 7 percent of the country’s GDP. Experts estimate that a high volume of these remittances currently go through informal channels including friends, relatives or other non-recorded sources such as hawala.
 Do you have an estimate of average transaction size of formal remittance across the key corridors?
 It varies but most of our customers globally tend to send relatively small amounts to cover, for example, health and school fees. They also rely on our service to get their money quickly and securely to recipients often living in remote areas.
A typical customer sending to Pakistan tends to send more per transaction than our average customer. However, those sending to mobile money wallets through our partnership with JazzCash tend to send smaller amounts but more frequently
 Do you have an estimate of the average transaction size of informal remittance across the key corridors?
 We do not have access to this data.
 What is your assessment of PRI activities in terms of arranging tie-ups, marketing activities, training the outgoing labour, or awareness campaign?
 PRI has played a significant role in increasing formal remittances to Pakistan. This has enabled banks and MTOs to offer lower-cost remittance solutions for customers, which is something we support.
 What do you think of Pakistan Banao Certificate?
 Pakistan Banao Certificates provide an extremely attractive investment opportunity for overseas Pakistanis. It will enable the diasporas to invest in the country’s future, and it provides a competitive return on investment. I believe that maintaining investor confidence, transparency, security, simplified digital processes and increasing customer awareness will be critical for the success of the project.
What are the prospects of digital remittance? What’s the discussion on having a remittance index?
 In just less than 20 years, the number of migrants in the world – that is people living in countries other than the one they were born in – has grown by almost 40 percent from 173 million to nearly 250 million. The money those migrants send home has grown even faster, up by 85 percent in the past decade – that’s after even allowing for a dip following the 2008 global economic crisis.
However, of the $700 billion sent every year, the majority are still sent in cash, over the counter or at high street agents. Western Union and MoneyGram – two of the biggest names in the industry – account for less than 20 percent of market share, but a growing share is moving online. As 50 percent of the world’s population now has access to the internet, and with new users coming online every day, we anticipate that the growth of digital remittances will accelerate going forward.
The money migrants send home has been growing exponentially. At this rapid pace of growth, the industry is transforming with new players and new technology constantly entering the market. We support any initiative that facilitates greater transparency and a reliable source of information, which might benefit the customer.

‘Delicate Equilibrium’ as world economy slows

Bank of England’s Carney sees ‘delicate equilibrium’ as world economy slows

Global economic growth is likely to stabilise at a new, slower pace, although China, trade wars and rising protectionism threaten the “delicate equilibrium”, Bank of England Governor Mark Carney said.
He pointed to a shift towards tighter financial conditions from rising in interest rates, as well as trade tensions, as reasons for the recent slowdown in the world economy.
Rising debt in China and new barriers to global trade were a “significant and growing” risk to the global outlook for growth, and protectionism was already having an impact, Carney said in a speech at a Financial Times event on Tuesday.
“Given the confluence of the current broad-based slowdown and outstanding downside risks, some are beginning to wonder whether the global expansion, begun in 2010, could be starting to end,” Carney said.
“While there are pockets of risk and global growth is still decelerating, the combination of the policy response and the state of the current imbalances in advanced economies suggest that global growth is more likely than not to stabilise eventually around its new, modest trend.”
“But this is a judgement, not a guarantee. The world is in a delicate equilibrium.”
Carney added that “it isn’t easy to win a trade war”, referring to remarks made by US President Donald Trump in March last year that trade wars were “good, and easy to win”.
On Brexit, Carney said it was in everyone’s interests to find a solution that works for all in the weeks ahead.
“In many respects, Brexit is the first test of a new global order and could prove the acid test of whether a way can be found to broaden the benefits of openness while enhancing democratic accountability,” Carney said.
The United Kingdom is on course to leave the European Union on March 29 without a deal unless May can convince the bloc to a mend the divorce deal she agreed in November and then sell it to sceptical British lawmakers.

 

Britain’s ‘broken’ cash system needs overhaul

 Britain’s system for cash is “broken” and needs a fundamental rethink to avoid vulnerable people being cut off, lawmakers and regulators said on Tuesday.
Lawmakers are concerned that free-to-use cash machines or ATMs in rural areas are being closed as falling demand for notes make them uneconomic, leaving customers isolated.
“The national system for people to have access to their cash via machines is basically broken,” said Nicky Morgan, chair of parliament’s Treasury Select Committee.
Currently banks effectively subsidise uneconomic cash machines through the “interchange” fee set by Link.
The Payment Systems Regulator and Link locked horns last year over closures of “protected” or uneconomic cash machines, and Link’s plan to cut the interchange fee in phases.
“We have agreed the whole system needs to be looked at afresh,” PSR Chair, Charles Randell, told the committee.
Regulators could “hold the line” for now, but the demand for cash may decline even faster as people switch to contactless payments, Randell said.
This raised the question of whether future subsidies could still come from the commercial sector, or if some cash machines should be a “universal” service funded by the public, Randell said.
The banking sector has already back-tracked on plans to ditch cheques, and faces lawmaker ire over branch closures.
Separately, consumer campaign group Which? said that 3,000 cash machines vanished from Britain’s streets in the last six months of 2018, and called on the government to set up a new regulator to oversee cash.
There were still over 60,000 ATMs in Britain at the end of last year, Which said.
UK Finance, which represents banks, said lenders were investing in the cash machine network to ensure continuity of service when ATMs are no longer commercially viable to operate.
PSR Chief Executive Hannah Nixon told lawmakers the watchdog has been clear to Link that it must maintain interchange fees at a level that keeps ATMs in remote areas open.
Nixon, who is standing down this year, said there was now a process in place to head off closures of protected ATMs, and that cash and cheques were here to stay as long as people wanted them.
The payments system was “as ready as it could be” in the event of Britain leaving the European Union next month with no transition deal, Nixon said.
But there was no clarity on whether it would become more expensive for people travelling in the EU to use their payment cards if there was no Brexit deal, Randell said.