Euro politics: German politics paralyzed by immigration issues – During the weekend, the coalition talks between the conservative CDU/CSU led by Angela Merkel, the liberal FDP and the Greens (the so-called Jamaica coalition) failed. Thus, Germany was next in a long row of countries where general elections delivered a seriously fragmented result, making the formation of a majority coalition of traditional political parties a complicated affair. Although the three “Jamaica”- parties had some differences related to tax changes and environmental policy, the main breaking point seems to have been immigration, particularly differences between the CSU (the CDU’s conservative Bavarian sister party) and the Greens. The topic of immigration has become particularly sensitive in Germany as the big winner of the September elections was the far-right Eurosceptic anti-immigrant AfD, which received almost 9% of the votes and re-entered parliament for the first time since World War II. At the moment, the only way to get out of the impasse seems to be that Ms Merkel either enters a minority government with the Greens (as the FDP was the party that threw in the towel during the weekend), or that new elections are held. That said, Ms Merkel could also still try to persuade her previous coalition partner the centre-right SPD to change its mind of entering the opposition and to re-join her in a next coalition. (Aline Schuiling)171120-Global-Daily.pdf (45 KB)
China macro: Growth is slowing, not collapsing – China’s macro data for October that were published in the past few weeks (PMIs, trade, industrial production, retail sales, fixed investment) are in line with our view that Chinese growth has resumed a gradual slowdown from Q3 onwards. We should add to this that the October numbers are impacted by air pollution curbs, so some correction could be expected for November. We expect official GDP growth to fall to 6.6% yoy in 2017Q4, and to slow gradually further in subsequent quarters. We expect Bloomberg’s alternative growth estimate to fall moderately as well in the coming quarters. Meanwhile, the transformation towards a consumption-based economy is ongoing (consumer confidence has jumped to a 24-year high). Record-high sales booked on Singles’ Day are illustrative for the rise of the new economy. Higher inflation and expectations of further policy tightening are driving bond yields up, but we expect the PBoC to continue to support system liquidity and we see overall credit growth slowing moderately. All in all, we expect China’s economy to slow, not to collapse. That said, China will pose various risks to the global economy. Chinese import growth, for instance, will likely slow materially in value terms next year (less so in volume terms). See for more background our China Watch, Growth is slowing, not collapsing published earlier today (Arjen van Dijkhuizen).