Yesterday Germany contracted by 0.2 percent this quarter, undercutting Bundesbank forecasts that gross domestic product would be unchanged. The contraction is mainly due to a disappointing performance on foreign trade and investment. German Minister for Economic affairs Sigmar Gabriel blamed the country's slowdown on threats from eastern Europe and the Middle East, and a weaker euro zone.
With these headwinds still fairly prominent we could see more poor economic results from Germany.
The French economy did not do much better, GDP failed to grow for the second quarter in a row. It then forced the French government to announce publicly that it would miss its budget deficit target this year and cutting its 2014 forecast for 1 percent growth to just 0.5%
In another blow to the Euro currency annual inflation rate dropped to 0.4 percent in July, from 0.5 percent in June. This is well below the Eurozones target figure of 2% and pushes the Euro closer to deflation.
Prices rose in restaurants and cafes, rents, and maintenance of vehicles, while the price of fruit, vegetables and telecommunications all fell.
The Euro is now stuck in a difficult cycle of low economic growth, low inflation high public debt and shrinking tax revenues. Mario Draghi may be forced to make implement further monetary policies such as quantitative easing to try to pull Europe out of this increasingly difficult situation.
In the US jobless claims climbed by 21,000 to 311,000 in the period ended Aug. 9, the highest in six weeks. Applications for unemployment benefits in the U.S. rose more than forecast last week, interrupting a steady decline in claims. A significant decline in layoffs has been the major driver of an improving job market. This is a good sign that business owners have a more optimistic outlook and are more willing to retain their staff.
Fed Chair Janet Yellen has argued that there is still slack in the labour market, citing poor wage growth and a large number of long-term unemployed Americans and those working part-time. This is now the main factor for her remaining reluctant to raise interest rates in the US.
09:30 BST – GBP UK GDP (Q2) expected to be unchanged at 0.8%
13:30 BST- USD US Producer price index (July) expected to be lower at 1.8%
14:15 BST- USD- US industrial production (July) expected to be higher at 0.3 %
14:55 BST - USD – US Consumer sentiment (Aug) expected to be higher at 82.2
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