Consumption, euro zone recovery lift German growth
Vibrant domestic demand and strong export growth fuelled by a recovery in the euro zone will boost growth in Germany this year and next, the Ifo economic institute said on Tuesday, raising its 2017 growth forecast for Europe’s largest economy. “We’re experiencing a first half which is so strong that the impetus will carry on into the coming year,” Timo Wollmershaeuser, head of economic research at Ifo, said in a statement. Ifo raised its growth forecast to 1.8 percent from 1.5 percent, adding that risks linked to Britain’s decision to leave the European Union and the election of Donald Trump as U.S. president have receded since the start of the year. “We assume the Brexit negotiations between Britain and the EU will go ahead without much turbulence, and an exit plan should emerge early on without any major negative effects on the economic interdependence between the EU and Britain,” said Wollmershaeuser of the talks which began on Monday. For 2018, the institute predicts Germany’s gross domestic product will expand by 2.0 percent, up from the 1.8 percent it had predicted previously.
China business confidence index rises in Q2 – c.bank survey
Business confidence among entrepreneurs in China improved in the second quarter of 2017 from the first quarter, according to a survey by the People’s Bank of China published on Tuesday. Another central bank survey showed bankers’ confidence also rose in the second quarter, though 30.1 percent of bankers believed monetary policy was “relatively tight” in the April-June period, up 9.8 percentage points from the first quarter.
Yield curve flattens as Fed stays hawkish amid low inflation
The U.S. Treasury yield curve flattened to its lowest levels since December 2007 as more hawkish Federal Reserve officials led intermediate-dated notes to underperform long-term bonds, which are being supported by falling inflation. Boston Fed President Eric Rosengren said on Tuesday that the era of low interest rates in the United States and elsewhere poses financial stability risks and that central bankers must factor such concerns into their decision-making. On Monday, New York Fed President William Dudley said halting the rate-hiking cycle now would imperil the economy, and unemployment at 4.3 percent now and inflation at 1.5 percent were “a pretty good place to be.” “The more the Fed beats in this relentlessly hawkish message, the more the yield curve just ends up flattening on it,” said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York. The yield curve between five-year notes and 30-year bonds flattened to 107 basis points, the lowest since December 2007.