Aurelia Butler

FRANKFURT (Reuters) – The current weakness in German industry is sapping demand in Switzerland’s manufacturing sector, Swiss National Bank Chairman Martin Schlegel said on Saturday.”When Germany has a cold, Switzerland gets the flu,” he said, noting that there was significantly less demand among Swiss manufacturers owing to the downturn in Germany, Switzerland’s top overall trade partner.Schlegel was speaking at an event in Frankfurt organized by Germany’s Bundesbank less than two weeks before the Swiss central bank is due to make its next interest rate decision.So far in 2024, the SNB has reduced its benchmark rate three times to 1% now, with expectations of more cuts to come.Markets currently give a 72% probability for a 25 basis point cut, and a 28% likelihood for a 50 basis point cut at the SNB’s next monetary policy meeting on Dec. 12.The rate cuts have followed slowing inflation, which has been within the SNB’s 0-2% target range for nearly 18 months.In October, Swiss annual inflation eased to 0.6%, its lowest level in more than three years. More

DUBLIN (Reuters) – Ireland’s two large centre-right parties looked on course to be returned to power after an election on Friday, but they will likely need at least one junior partner to reach a majority, raising questions about the stability of the next government. The parties may face prolonged negotiations or an unstable coalition ahead of the inauguration of U.S. President-elect Donald Trump, whose pledge to slash corporate tax and impose tariffs poses a major threat to the Irish economy.Outgoing government parties Fine Gael and Fianna Fail were on 21% and 19.5% respectively in an exit poll, a touch behind left-wing Sinn Fein on 21.1%With the two centre-right parties ruling out a deal with Sinn Fein, the main question was how close to the 88 seats needed for a majority the pair can secure – and whether they would need one or two more coalition parties to get over the line.”If they are both at 20%, that’ll get them close to 80 seats, I suspect, and then it’s a matter of who will go in with them,” said Dublin City University politics professor Gary Murphy. To have a stable government, they will be hoping that small centre-left parties and potentially willing partners Labour or the Social Democrats get 11 or 12 seats, Murphy said. A coalition with four parties could be far more fragile. The current junior coalition party, the Greens, secured the support of just 4%, down from 7% at the last election. That could see their seat numbers fall from 12 to three, said senior party member Ciaran Cuffe. The formal counting of votes began at 0900 GMT and is expected to last until Sunday at the earliest in many constituencies under Ireland’s proportional representation system known as the single transferable vote. That system is likely to give the larger parties a higher proportion of seats than their percentage of votes, but an approximate tally of seats might not emerge until Sunday. GIVEAWAY BUDGETPrime minister Simon Harris called the election on the heels of a 10.5 billion euro ($11 billion) giveaway budget that began to put money into voters’ pockets during the campaign, largesse made possible by billions of euros of foreign multinational corporate tax revenues.However, a campaign full of missteps for his Fine Gael party, culminating last weekend in a viral clip of Harris walking away from an exasperated care worker, cost them their pre-election lead.The government parties also faced widespread frustration during the campaign at their inability to turn the healthiest public finances in Europe into better public services.Sinn Fein, the former political wing of the Irish Republican Army, appeared on course to lead the next government a year ago but suffered a slide in support from 30-35%, in part due to anger among its working class base at relatively liberal immigration policies. Fine Gael and Fianna Fail, former rivals that have between them led every government since the foundation of the state almost a century ago, agreed to share the role of prime minister during the last government, switching roles half way through the five-year term. A similar arrangement appears likely this time. More

PARIS (Reuters) -French Finance Minister Antoine Armand said on Saturday that the 2025 budget could still be improved, but stopped short of giving ground in a standoff with the far right over new concessions.France’s budget deficit has spiralled out of control this year, pressuring French government bonds, although ratings agency Standard & Poor’s gave Prime Minister Michel Barnier’s fragile minority government a rare reprieve late on Friday by leaving its rating steady.Any relief is likely to prove short-lived with both the left and far right threatening to bring Barnier’s government down over the budget, which seeks to squeeze 60 billion euros ($64 billion) in savings through tax hikes and spending cuts.Marine Le Pen’s far right National Rally (RN), whose tacit support Barnier needs to survive a likely no confidence motion, has given him until Monday to accede to her demands to make further changes to the budget.”This government, under his authority, is willing to listen, to have a dialog, to be respectful, to improve this budget,” Armand told journalists.Asked about the showdown with Le Pen, he said: “The only ultimatum really facing the French is that our country gets a budget.”On Thursday, Barnier dropped plans to raise electricity taxes in the budget as the RN had demanded, but it is keeping pressure on the government to hike pensions in line with inflation where the government had hoped to postpone an increase to save money.RN lawmaker Jean-Philippe Tanguy told Les Echos newspaper on Saturday if the bill is not modified the party would back a no-confidence motion.The test could come as soon as Monday if Barnier’s government has to use an aggressive constitutional measure to ram the social security financing legislation through parliament, which will trigger a no-confidence motion.”The government doesn’t seem to want to move (on pensions). We are waiting to see the social security bill on Monday to draw conclusions,” Tanguy said.The RN also wants planned cuts to medication reimbursements by the state to be axed, increased taxes on share buybacks and financial transactions as well as a cut in France’s contribution to the European Union’s budget.The government’s aim to cut the budget deficit next year to 5% of economic output from over 6% this year is already sliding in the face of costly concessions made to the RN and other parties.Standard & Poor’s said that it expected the deficit at 5.3% next year and said the outlook was unclear after that whether France could keep reducing the deficit to an EU limit of 3% as currently planned by 2029.As the RN has firmed up its demands, French debt and stocks have come under pressure in recent days, pushing the risk premium on French government bonds to their highest level in over 12 years.”The absence of a budget (and) political instability would bring a sudden and substantial increase in the financing costs of French debt,” Armand said.($1 = 0.9456 euros) More

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The policy package, focusing on trade, immigration, fiscal measures, and deregulation, is projected to amplify US growth, inflation, and interest rates beyond current consensus forecasts. However, its effects on other nations, particularly China and the Euro area, are expected to be less favorable.BofA notes that the anticipated policies include trade tariffs on China, tightened immigration controls, debt-financed tax cuts, and sweeping deregulation in key sectors like financial services and energy. These moves aim to stimulate US economic activity but could exacerbate the US current account deficit.“Ironically, the described policy mix will not do much to reduce the US current account deficit, which responds to a macroeconomic saving-investment imbalance,” economists led by Claudio Irigoyen said in a note.“Most likely, the current account deficit will widen as long as the rest of the world remains willing to finance it.”While the US is projected to emerge as a beneficiary of Trumponomics 2.0, the ripple effects are expected to strain other economies. BofA identifies China and the Euro area as the most vulnerable to the resulting shifts in global financial conditions and trade flows.The Euro area is grappling with structural challenges and weak demand, while China faces cyclical pressures compounded by property market struggles and youth unemployment.“Instead of retaliating significantly, we expect China to undertake sizable fiscal easing to cushion the shock,” economists noted.“Tariffs on USMCA members look unlikely. Overall, we forecast higher real rates, a strong dollar and lower oil.”The impact on emerging markets (EMs) is expected to be mixed, BofA says. Nations like Mexico, Vietnam, and India could benefit from supply chain realignments triggered by US-China trade tensions.Conversely, commodity exporters might suffer from lower oil prices, a dynamic influenced by uncertain production levels in Saudi Arabia and Iran.”The fortunes of commodity exporters will depend on the trade-off between the negative tariff and interest rate shocks and the positive reflationary effect of potentially significant fiscal easing in China,” the bank’s team explains.BofA also highlights risks tied to the policy trajectory, including potential trade wars and geopolitical instability. While a focus on pro-growth measures could elevate global output, aggressive protectionism risks triggering economic slowdowns.“Hawkish US protectionist policies could trigger a full-fledged trade war if other countries retaliate in kind, potentially leading to a global slowdown,” BofA cautions.“A significantly worse stagflationary scenario would entail a global slowdown in the US and the rest of the world coupled with the decision to significantly increase the US deficit financed with some sort of financial repression. Finally, a worsening of geopolitical tensions would add insult to injury,” it continued. More

Key insights from their latest research suggest a year defined by divergent trajectories across the Euro area, the UK, and individual member states.In the Eurozone, growth is projected to hover around 0.9% in 2025, underpinned by mild cyclical recovery driven by consumption. This recovery benefits from the ongoing disinflation process, which supports real wage gains, albeit only until the latter half of the year. However, business investment is expected to remain subdued due to heightened trade uncertainties and constrained medium-term demand. The European Central Bank is anticipated to continue its rate-cutting cycle, with the deposit rate potentially falling to 1.5% by September 2025, as the ECB grapples with weak economic momentum and persistent inflation undershooting its targets.Inflation in the Euro area is forecasted at 1.6% in 2025, reflecting the impact of lower energy prices and a subdued demand environment. Analysts believe this will further manifest as a chronic output gap and an overly restrictive policy mix. Despite these challenges, the possibility of a pan-European fiscal policy overhaul or a German-led rethink could offer upside potential, though these remain uncertain given the region’s current political and economic climate.The UK’s economic trajectory reveals a slightly different narrative. Growth expectations for 2025 stand at 1.5%, bolstered by fiscal easing measures introduced in the October 2024 budget. However, inflation risks persist, with projections suggesting inflation will remain above target until mid-2026, driven by wage growth and policy-related pressures. The Bank of England is expected to proceed cautiously with rate cuts, aiming for a terminal rate of 3.5% by early 2026. Meanwhile, risks related to potential US-imposed tariffs and global trade uncertainties could further complicate the outlook, impacting trade and consumer sentiment.On a country-specific level within the Euro area, Germany and France face particular challenges. German growth forecasts have been downgraded to 0.4% in 2025 due to ongoing fiscal rigidity and labor market pressures, while in France, political uncertainties surrounding the budget could exacerbate economic fragility. Italy and Spain show relatively stronger performance, with Spain continuing to outpace other major economies in the region, due to government spending and tourism, although its long-term fiscal challenges linger. More

In a Monday note, Yardeni Research highlights the many moving parts shaping this administration’s economic policies and their potential impact on the Roaring 2020s, an era of remarkable growth and resilience for the US economy and stock market.The backdrop for this analysis is extraordinary. Despite major challenges, including a pandemic, geopolitical crises, and aggressive Federal Reserve rate hikes, US real GDP and the S&P 500 have both reached record highs.Federal spending, which remains heavily stimulative, has been a significant driver. Since 2022, government outlays on healthcare, Medicare, and Social Security rose by $623 billion to a record $3.3 trillion.“There was a big drop in government spending on income security by $806 billion to $0.7 trillion, but that was almost completely offset by a $139 billion increase in defense spending to a record $0.9 trillion and, even more significantly, by a $510 billion increase in net interest outlays to a record $0.9 trillion,” Yardeni explains.Under Trump 2.0, fiscal policy could remain expansionary or turn restrictive. Tax reforms, a hallmark of Trump’s first term, are set to deepen. The corporate tax rate may drop further to 15%, with additional cuts to individual taxes on tips, overtime, and Social Security.While these measures could widen the federal deficit, Trump’s administration aims to counterbalance them through deregulation and higher tariffs, potentially raising $400 billion to $800 billion in revenues.“That’s assuming that these higher tariffs don’t reduce imports significantly or start a global trade war,” Yardeni emphasizes.Deregulation is another key element. Reducing the federal government’s size may shrink payroll employment but could lower operational costs for businesses. However, contentious policies like deportation may reduce the labor force, creating inflationary pressures unless offset by productivity gains.Energy policies aimed at boosting oil and gas production could keep energy prices in check.The administration also faces risks, particularly from “Bond Vigilantes.” If fiscal policies appear unsustainable, bond yields could surge, undermining economic momentum. Federal Reserve Chair Jerome Powell has warned that fiscal policies must address the unsustainable path of federal debt, a challenge that Trump’s team will need to navigate carefully.Despite these complexities, Yardeni Research remains cautiously optimistic. They project that Trump 2.0 might boost productivity, sustain economic growth, and keep inflation in check. The administration’s success in balancing fiscal discipline with growth-oriented policies will be key.“Our base case for the remainder of the decade, with Trump 2.0 running Washington over the next four years, remains the Roaring 2020s,” the market research firm said.While the road ahead is fraught with “known unknowns,” the US economy has repeatedly shown resilience, thriving even amid Washington’s meddling. Whether Trump 2.0 bolsters or disrupts this momentum remains to be seen. More