Overseas Headlines – December 19, 2017


German business morale falls as political impasse clouds outlook

German business morale deteriorated unexpectedly in December after hitting an all-time high in the previous month, a survey showed on Tuesday, suggesting that political deadlock in Europe’s economic powerhouse is clouding the outlook. Chancellor Angela Merkel is struggling to form a stable government after her conservatives lost voters to the far right in September’s election and her attempt at a tricky three-way alliance with two smaller parties failed last month. The Munich-based Ifo economic institute said its business climate index, based on a monthly survey of some 7,000 firms, edged down to 117.2 from an upwardly revised reading of 117.6 in November which was the highest on record. The December reading came in lower than a Reuters consensus forecast for a value of 117.5. The slight drop in the headline figure was driven by managers’ less optimistic business expectations while their assessments of the current situation were more positive. Overall business morale remained on a relatively high level, Ifo chief Clemens Fuest said, adding: “German businesses are full of festive spirits.” Ifo economist Klaus Wohlrabe warned against over-interpreting the drop. “If the situation is already very good it is even more difficult to expect better business,” he said.




World Bank raises China 2017 growth forecast, maintains 2018 outlook

The World Bank on Tuesday raised its forecast for China’s economic growth in 2017 to 6.8 percent from 6.7 percent it projected in October, as personal consumption and foreign trade supported growth. But the Washington-based lender kept its forecast for China’s 2018 and 2019 GDP growth unchanged at 6.4 percent and 6.3 percent, respectively, due to less accommodative monetary policy and the government’s effort to rein in credit and control leverage. The key downside risks to the forecast are the still rising leverage of the non-financial sector and uncertainty around housing prices. “Despite the recent slowdown, credit continues to grow considerably faster than GDP. Outstanding bank loans reached 150 percent of GDP in November 2017, up from 103 percent at the end of 2007,” the World Bank said in its China Economic Update. China’s economy grew at a faster-than-expected 6.9 percent over the first nine months of the year, but Beijing’s campaign to reduce risks in the financial sector has pushed up borrowing costs, raising concerns GDP growth could take a hit next year. But strong growth so far this year has given policymakers an opportunity to accelerate deleveraging, which is “likely to come at the cost of slower GDP growth in the near term but will improve China’s long-term economic prospects,” the World Bank report said.





U.S. Single-Family Housing Starts Rise to Highest in a Decade

Groundbreaking on single-family homes proceeded in November at the strongest pace in a decade, driving U.S. housing starts to a faster-than-estimated rate, government figures showed Tuesday.


Highlights of Housing Starts (November)

Residential starts rose 3.3% to 1.3m annualized rate (est. 1.25m) after 1.26m pace in prior month (revised from 1.29m)

Single-family starts jumped 5.3% to 930,000, highest since Sept. 2007; South and West regions also were 10-year highs

Permits, a proxy for future construction of all types of homes, fell 1.4% to 1.3m rate (est. 1.27m) from 1.32m pace; single-family permits in U.S. and South both highest since Aug. 2007


Key Takeaways

The latest results make it more likely that residential construction spending — which subtracted from economic growth in the second and third quarters — will add to the pace of U.S. expansion in the October-December period, which is already shaping up as a solid quarter. The November gains are encouraging because they’re driven by single-family home building, which tends to spur economic activity and jobs in a bigger way than apartment construction. Single-family permits have increased for three straight months, also indicating a sustained pipeline of work for developers.