By Marc Morley-Freer, Head of Private Client Business at Smart Currency Exchange
Positive GDP growth of + 0.3% in quarter one sounds good doesn’t it? Well it does - until you take into account that this estimate is subject to a margin of error of 0.2% either way - so realistically, the UK economy is flat lining.
With 40% of UK exports ending up in the Eurozone, UK businesses need a stable macro-economic climate to support growth. Even if the revised figure stays at 0.3%, we are still some way behind our American cousins who saw an increase of 2.5%. With the world’s largest economy seemingly on the way to recovery, this can only be positive to the global outlook.
In Europe, the news is again centred on Italy and Greece. To secure its next tranche of loans worth 8.8billion euros, over the weekend the Greek parliament narrowly approved 15,000 civil service job cuts with almost 2,000 jobs being cut by the end of June.
Whilst this headline looks worrying - and was enough of a reason for another protest - in reality, for the Greek government to have some form of stability in the public sector, they need to slim down by a further 150,000 jobs by 2015. You can just imagine what would happen if the government announced that level of cuts!
In Italy, Giorgio Napolitano has announced a new ‘grand coalition’ Italian government including, not surprisingly, Enrico Letta and Silvio Berlusconi’s People of Freedom party. The swearing in ends two months of political deadlock and is already being known as the ‘Christmas government’ on the basis that commentators give the coalition about seven months before it starts to break up. Needless to say, this is all too common place in Italian politics and the markets have remained unchanged as they await news on the government plans to kick start the economy.
Thursday this week sees the ECB set to announce the interest rates across Europe, with commentators suggesting that a rate cut of 0.25% is possible. Given the news from the Bundesbank that it has slashed its growth forecast for Germany in 2013 to 0.4% from the initial 1.6%, a rate cut is now looking more likely than not.
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