German economy bounces as QE draws near
The best-known indicator for the German economy is pointing to a speed-up in growth in the fourth quarter.
Full-blown quantitative easing (QE), or money printing, is drawing nearer in the eurozone, says European Central Bank (ECB) president Mario Draghi. The ECB will "do what we must to raise inflation and inflation expectations as fast as possible". Eurozone inflation is rising at just 0.4% a year, and fears of a Japan-style deflationary slump are spreading.
Draghi's statement sent government bond yields to new record lows as prices rose that's because full-blown QE is expected to involve the ECB buying government bonds with printed money. Borrowing costs for Italy, France and Belgium all hit fresh all-time lows. The latest economic data, meanwhile, was mildly encouraging, with German business and investor confidence ticking up.
What the commentators said
This suggests that the slide in the euro and easing concerns over the stand off in Ukraine, which so dented confidence earlier this year, are now having an impact, as Capital Economics pointed out. But let's not get carried away. This year's annual growth rate for the German economy is set to reach just 0.8%. That seems highly unlikely to "power the eurozone recovery as had previously been hoped", especially in view of the ongoing stagnation in the other major economies.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Most analysts now think the ECB's ultimate goal is to implement traditional QE with government bonds, rather than the various watered-down versions it has tried in recent months. It may not launch it for a while, as it is still currently buying private-sector bonds and trying to entice banks to lend more but these programmes are widely deemed insufficient to boost growth significantly. Whether full-blown QE can really shake the eurozone out of its torpor is another question altogether, but big liquidity injections tend to be good news for stockmarkets. Barclays, having pencilled in QE, reckons European stocks will return 18% next year, compared to 5% from the US.
-
FTSE 100 hits record highs – why is it rising and will we see more gains?
Advice UK equities have been described as unloved for a long time but as the FTSE 100 hits new highs, we explain if now is the time to buy British.
By Marc Shoffman Published
-
How to invest in copper
It may be time to invest in copper as the red metal appears poised for a big jump. Dominic Frisby looks at what should investors should buy
By Dominic Frisby Published