Business

UK Economy Stagnates in Q3 Amid Growing Recession Fears

Published

3 days ago

December 23, 2024

RTX

The UK economy recorded zero growth in the third quarter of 2024, reflecting a marked slowdown from the 0.4% growth seen in the previous quarter, according to revised figures from the Office for National Statistics (ONS). The flatlining gross domestic product (GDP) figure, which fell short of analyst expectations of 0.1%, underscores mounting economic challenges as businesses and households face heightened uncertainty.

Key Factors Behind the Stagnation

The lack of growth in the services sector, particularly in the insurance and financial industries, weighed heavily on the economy. The production sector also contracted by 0.4%, largely due to a decline in gas, electricity, air conditioning, and steam supply.

Alpesh Paleja, interim deputy chief economist at the Confederation of British Industry (CBI), attributed the stagnation to a challenging business environment. “There is little festive cheer in our latest surveys, which suggest that the economy is headed for the worst of all worlds,” Paleja said. “Firms expect to reduce both output and hiring, and price growth expectations are getting firmer.”

Businesses have voiced concerns over policy changes introduced by the Labour government following its election in July, including higher employer national insurance contributions (NICs) announced in the Autumn Budget. These measures have reportedly led many companies to reassess their budgets as the new year approaches.

Mixed Sector Performance

While exports declined by 0.5% and imports fell by 2.5%, a slight rise in net trade helped offset some losses. Construction activity showed modest improvement, though it fell short of expectations.

Household spending remained unchanged from the previous quarter at 0.5%, as consumers grew cautious with festive expenses on the horizon. Meanwhile, business investment provided a rare bright spot, rising by 1.9% compared to 1.2% in the previous quarter.

Government consumption rose at a slower pace than anticipated, further reflecting the tepid economic environment.

Outlook for 2025

Paleja called on the government to take decisive action to restore business confidence and encourage investment. “As we head into 2025, firms are looking to the government to boost confidence and give them a reason to invest,” he said, highlighting the need for reforms in areas like the apprenticeship levy, business rates, and occupational health incentives.

Geopolitical uncertainties, including the Russia-Ukraine and Israel-Palestine conflicts, along with escalating trade tensions involving China, are expected to add further pressure on businesses in 2025. Analysts warn that without significant government intervention—such as tax breaks and innovation incentives—the UK risks prolonged stagnation.

The Labour government faces increasing pressure to chart a clear industrial strategy that fosters stability and growth, providing much-needed support for both businesses and households as the economy heads into the new year.

Business

Turkey’s Central Bank Cuts Interest Rate Amid Continued Disinflation

Published

9 hours ago

December 26, 2024

RTX

The Central Bank of the Republic of Turkey (CBRT) has announced a significant cut to its benchmark one-week repo rate, reducing it by 250 basis points to 47.5%. The move, exceeding economists’ expectations of a 150-basis-point reduction, signals a shift in monetary policy following eight consecutive meetings of steady rates.

Inflation Trends Drive Policy Shift

The rate cut comes as Turkey experiences sustained disinflation. November’s annual consumer price index (CPI) dropped to 47.09%, the lowest since June 2023 and down from 48.58% in October. This marks the sixth consecutive month of declining inflation. On a monthly basis, inflation rose by just 2.24%, the smallest increase in five months.

In a statement, the CBRT noted that leading indicators suggest a continued decline in the inflation trend for December, supported by moderating domestic demand. While core goods inflation remains contained, improvements have also been observed in service sector prices.

The central bank emphasized that its tight monetary stance is playing a crucial role in reducing inflation by curbing domestic demand, strengthening the Turkish lira, and improving inflation expectations. However, it acknowledged lingering risks and reiterated its commitment to a cautious approach, adjusting its policy based on evolving conditions.

Future Inflation Goals

The CBRT reaffirmed its medium-term inflation target of 5%, with a tolerance range of 2%. It projects inflation to fall to 21% by the end of 2025 and 12% by the end of 2026. Economists, including ING Group’s Muhammet Merkan, view these targets as more achievable but note that delays in the disinflation process could attract scrutiny.

Economic Stabilisation Gains Recognition

Turkey’s recent economic policies have garnered praise internationally. In November, Standard & Poor’s upgraded Turkey’s long-term sovereign credit rating to BB- from B+, citing improved monetary policy, a stabilized lira, and the rebuilding of foreign reserves. The agency highlighted a narrowing current account deficit, now reduced by about four percentage points of GDP since 2022, as a key achievement.

Similarly, BBVA commended the CBRT’s accumulation of foreign reserves, which has bolstered its status as a net foreign currency buyer.

Challenges Ahead

Despite progress, Turkey faces challenges. The Organisation for Economic Co-operation and Development (OECD) forecasts slower GDP growth, predicting 3.5% growth in 2024 and 2.6% in 2025 due to ongoing macroeconomic adjustments.

Market reactions to the rate cut have been muted. The Turkish lira remained stable against the euro, with the exchange rate holding at 36.61. Since November, the lira has strengthened by 2% against the euro but has depreciated by 12% over the year.

As Turkey works toward sustained disinflation and economic stability, the CBRT’s tight monetary policy and coordination with fiscal measures will be critical to navigating these challenges effectively.

Business

Stock Market Outlook 2025: Factors That Could Shape Market Sentiment

Published

1 day ago

December 25, 2024

RTX

As 2025 begins, global stock markets are poised for another year of potential rallies, building on the record highs achieved in 2024. Analysts predict that easing inflation, decreasing interest rates, and evolving market dynamics will play key roles in driving performance. However, risks remain, ranging from sovereign debt issues to geopolitical uncertainties.

Market Drivers

Global equities surged in 2024, fueled by advancements in generative artificial intelligence and robust economic recovery. The positive momentum is expected to carry into 2025, with investment firms like Brooks Macdonald forecasting that cooling inflation and interest rate cuts will sustain market growth.

In the U.S., the possibility of extending or enhancing tax cuts could further boost markets. Chris Crawford, managing partner at Crawford Fund Management, also pointed to Bitcoin’s mainstream adoption as a growing trend.

Investment director Russ Mould from AJ Bell highlighted the changing market rules, largely driven by AI, urging investors to adapt their strategies to capitalize on these shifts.

Risks and Challenges

Despite the optimism, challenges loom on the horizon.

Sovereign Debt:
High debt levels in major economies could threaten growth. The U.S. debt-to-GDP ratio has reached 123%, with the annual interest burden exceeding $1 trillion. Analysts warn that rising bond yields or prolonged higher interest rates could strain economic stability.
Trade Developments:
President-elect Donald Trump’s proposed tariffs could impact global trade, particularly with China and the eurozone. While some analysts believe these measures may remain targeted, disruptions to supply chains and inflationary pressures in the U.S. are potential concerns.
Currency Dynamics:
A strong U.S. dollar, driven by reduced trade deficits, could lead to global liquidity challenges. Emerging markets, which often borrow in dollars, may face increased debt-servicing costs.

Shifting Market Trends

The dominance of tech giants—dubbed the “Magnificent Seven” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla)—may wane in 2025. Analysts caution that these companies’ lofty valuations could face pressure from unexpected recessions or sustained inflation.

Crawford predicts that small and mid-cap equities, which have underperformed in recent years, could attract renewed investor interest.

Mergers, Acquisitions, and IPOs

The year is expected to see a wave of mergers and acquisitions, driven by relaxed regulations and favorable credit markets. IPOs, too, are anticipated to make a comeback, potentially drawing generous valuations.

While optimism prevails, analysts advise caution, urging investors to stay vigilant as market dynamics evolve.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always consult a financial expert for tailored guidance.

Business

Germany Faces Challenging 2025 Amid Stagnation and Structural Woes

Published

2 days ago

December 24, 2024

RTX

Germany is bracing for a difficult year in 2025, grappling with stagnating growth, fiscal uncertainty, geopolitical risks, high energy costs, and a weakening automotive sector. Without significant reforms, Europe’s largest economy risks prolonged economic malaise.

Bleak Growth Projections

Germany’s economy has seen minimal growth since late 2019, with 2025 projections among the weakest globally. Real GDP is expected to grow by only 0.3%, according to Goldman Sachs, while the Bundesbank forecasts a mere 0.2% rise. The Kiel Institute predicts outright stagnation at 0.0%.

Weak exports, sluggish private consumption, and faltering investments underpin this stagnation. Structural pressures from decarbonization, digitalization, and demographic changes have further dimmed the outlook.

“It is unclear whether the current phase of stagnation is temporary or signals a permanent and painful adjustment,” said Timo Wollmershäuser of the ifo Institute.

Political and Fiscal Uncertainty

Germany’s early federal elections in February 2025 add to the uncertainty. Investors are keenly watching whether a new government will tap into Germany’s strong fiscal capacity to stimulate growth.

Although Germany has one of the lowest debt-to-GDP ratios among advanced economies, its constitutional “debt brake” limits public borrowing. Analysts warn that without pro-growth reforms, such as tax incentives and infrastructure spending, Germany may lag behind its European neighbors.

“Fiscal policy is set to be restrictive this year and in the next two years,” the Bundesbank noted. The Kiel Institute echoed concerns, highlighting how election-related uncertainty has already dented business confidence.

Challenges in the Automotive Sector

Germany’s automotive industry, a cornerstone of its economy, faces mounting pressures. Major players like Volkswagen, BMW, and Mercedes-Benz have lost market share to U.S. and Chinese competitors, particularly in electric vehicles.

China, once Germany’s top export market, has become a rival. Disappointing growth in China and trade policy uncertainties have also weighed on German automobile exports.

“The automotive sector reflects structural changes and declining export competitiveness,” the Kiel Institute stated.

Geopolitical Risks and Trade Protectionism

Germany’s export-driven economy remains vulnerable to global protectionism, particularly anticipated trade barriers under the incoming Trump administration. Analysts warn that potential U.S. tariffs could shrink Germany’s GDP by up to 1.2%, compounding economic woes.

High Energy Costs and Inflation

Elevated energy costs continue to burden German industries. The Bundesbank reported that production in energy-intensive sectors has contracted by up to 15%. Inflation, while easing from its 2022 peak, is projected to remain above pre-pandemic levels at 2.4% in 2025.

Urgent Need for Reforms

Experts stress that Germany must enact reforms to reduce corporate tax burdens, expand infrastructure, and address labor shortages. Without these measures, structural stagnation could persist.

“The German economy is not only struggling with economic headwinds but also with structural problems,” said Bundesbank President Joachim Nagel.

As Germany navigates these challenges, its economic recovery remains uncertain, with risks overshadowing potential growth opportunities.