Mixed Fortunes for UK and Europe

Though few are keen to admit it, economic recovery within the Eurozone has stalled. According to some reports, it has died entirely. The claims from several years ago that the crisis had ended were almost entirely incorrect.

European Situation

Germany’s economy has begun to contract and show slight weakness, though only by 0.2% in the second quarter. The combination of warmer weather and its impact on industrial production and the consequences of their sanctions on Russia are putting Germany’s economy into its first downturn for almost eighteen months. Imports and consumption were higher than their export and production rates, meaning that the impact in the third quarter will likely be sizeable. Across the border, increases in France’s gross domestic product have stalled, with predictions for growth being halved by the country’s Finance Minister. It’s even anticipated that the deficit will rise to be higher than the limit of 4% which had been agreed in meetings with the European Commission. Growth is expected to be just 0.5% in 2014.

Mixed Fortunes for UK and Europe
Outright deflation in the Eurozone came in at – 0.7% for July on a monthly basis, looking less than encouraging for the future of those countries within it. Although the euro has not collapsed, or even come close to that kind of perilous position, regulatory changes are called for in order to look towards the future and a strengthening economy around Europe. Those with an interest in money exchange are closely following the discussions.

The British Situation

Reports of Britain’s GDP are a little more promising, with growth for the second quarter at 0.8% and an estimated year-on-year figure looking likely to reach 3.0% or even 3.1%. Strong levels of spending in the retail and construction sectors will come to fruition later. The quarterly inflation report didn’t have too much of an impact on the value of sterling, but strong data from these sectors will likely push its value higher. On the other hand, market expectations of an interest rate rise in the fourth quarter continue to slip, with investors seeing around a 20% probability of the rate increasing before Christmas — down from an estimation of 42.5% probability earlier in the year.

Meanwhile, the dollar has not yet strengthened against the pound and the euro, aside from its initial decrease. The expectations of investors tend to see the Federal Reserve as set to increase interest rates in November of 2015. Overall, the US Federal Reserve has seemed to allow the Bank of England to continue to lead the way with regard to forward guidance, qualitative measures and threshold changes.

An awareness of the situation in Russia will need to be maintained in order to predict future policy, though. Not only do sanctions and trade limitations directly impact exchange rates and opportunities, but governmental policy also has its own consequences. The Japanese Yen is susceptible to fluctuation following talks of a ceasefire from Putin, whilst the Eurozone will see continued signs of change based on Russia’s military decisions.

Denny Jones

Hey there, I'm Denny Jones, a seasoned financial writer with over a decade of experience. I'm passionate about simplifying finance and empowering readers to achieve financial freedom. My articles offer practical advice and insights to help you navigate investing, budgeting, and personal finance with confidence. Let's unlock your financial potential together!

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