No surprises this morning as the Bundesbank has slashed the German growth forecast to 1%. This has followed the past few months where there has been tangible uncertainty about Germany’s macroeconomic vision. With criticism coming from those suggesting that Germany has regularly failed to provide a level of investment, which would lead any kind of recovery, coupled with bullish behaviour in keeping its high trade surplus.
The interdependence of the Eurozone has become increasingly clear since the crises, and it was well understood that Germany maintaining its surplus had constrained the growth of the weaker Eurozone members. The German hopes were that this would still help drive growth, but shown through interdependence the German economy is slumping.
Continuing with the lack of surprises the European Central Bank informed us that the expected inflation for this year would be 0.5% with a forecast of 0.7% for 2015. The last target of the ECB that I can recall was that of inflation being 2%. Germany is clearly causing a whole host of trouble due to its economic weight on the Eurozone, but shows no insight into the potential change of policy as they are still predicting growth to rally to 1.6%. Jens Weidmann throws some spurious figures and he then claims to be surprised by a lack of performance, although nothing has been out of the ordinary for the past two years.
Moreover, it is clear that the only person in the ECB that needs more support is Mario Draghi. I would go as far as to claim that he is the Eurozone’s only hope, with his desire to pursue quantitative easing in a strategic and defined manner in aiding structural reform is essential. With an overall aim of returning the size of the ECB’s balance sheet to that of 2012. It is fair to state that asset purchases do not have defined results, but it would be an improvement in comparison to Weidman’s insistence on a more passive approach. I am not the biggest advocate of quantitative easing, and more in line with structural reform to European labor law and the ease of businesses, but I believe that Draghi is representing an interventionist mixture that will lead Europe to sustained and reliable growth.
It will be interesting to see how the year closes off and what 2015 has to offer in terms to tangible change in our approach to modern economies which no longer fall in line with some of the traditional approaches still used and insisted upon.
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