European companies seem to be benefiting from a combination of years of cost cutting, global growth and low borrowing costs resulting in growing profitability and balance sheet strength. European companies are showing confidence by increasing their capital spending. Greater levels of employment are building across Europe, wages are rising and consumer spending has improved.
Synchronised global expansion has benefited Europe with Eurozone job growth and manufacturing orders hitting a seventeen year high at the end of 2017. This upswing in growth has carried over into the first half of 2018, but there are clear signals that growth is slowing most notably in the German economy. Consumer spending has fallen, and business surveys show weakened confidence.
Dusseldorf’s Macroeconomic Policy Institute (IMK) has warned that Germany’s economic outlook is deteriorating. This signals that global growth may be stalling as Germany is heavily reliant on world trade. Germany’s economic well-being is a measure of the state of the global economy. For example, as Germany is a major supplier of precision machine tools to China, the slower growth in China is starting to impact German demand and other supply chain nations.
The global supply of money is decreasing due to quantitative tightening and US interest rate rises. Money supply has reached a nine-year low which will have the impact of slowing the rate of growth. The ECB is also preparing to taper its own QE programme by €30bn of debt per month until September when it is expected to then start tapering the programme, further reducing world liquidity. While overall the Eurozone area is currently enjoying a good rate of growth and year-on-year
inflation for April is 1.2%. The ECB may still review its tapering plans as inflation may fall and growth may decline if QE is ended altogether.
In France, protest are mounting as President Macron’s reforms confront the privileges of the states railway workers which include, lifetime employment, retirement as early as 52 and free family travel on the rail network.
During his presidential campaign Macron consistently opposed the entrenched rights of public monopoly workers that cost consumers and tax payers dearly. President Macron has therefore extended Sunday trading; supported taxi hailing apps such as Uber against the taxi lobby and opened up access to long distant coach travel operators. In the case of the SNCF, France’s nationalised railway company, it will face open EU competition from 2021 but is currently struggling under €46bn of debt which grows every month.
Macron’s plans to reduce union control over professional education schemes, and to reform unemployment benefits and healthcare funding are all areas likely to further heighten social tensions. With the French public mostly backing their President, it seems unlikely that these reforms will be easily abandoned this time.