MacroScope

UK growth robust so what’s eating David Cameron?

Britain's Prime Minister Cameron arrives at the European Council headquarters ahead of a EU summit in Brussels

British GDP data are forecast to show healthy growth of 0.7 percent in the third quarter.

Britain’s economy is growing at a strong annual clip of around three percent, a pace most euro zone countries could only dream of. But the government is worried that the currency area’s new malaise could take the shine off things in the run-up to May’s general election.

Then there is the stunningly low level of wage and income growth, lower even than Britain’s sluggish level of inflation. This is a robust recovery but how many Britons are feeling it?

With elections increasingly in mind, the ruling Conservative party would not have been happy about some of the headlines from Day One of an EU summit in Brussels.

Climate change was the main business and Germany’s Angela Merkel said the EU will discuss a bridging loan to Kiev next week so that the country can pay in advance for Russian gas deliveries, as Moscow has demanded in return for turning the taps back on. That will come as a relief as any interruption to winter flows to western Europe, via Ukraine from Russia, would have dealt another blow to already struggling EU economies.

EU leaders meet for a gas

France's President Hollande talks with German Chancellor Merkel  during a meeting on the sidelines of a Europe-Asia summit in Milan

A two-day summit of EU leaders is supposed to focus on climate and energy policy including efforts to enhance energy security following the threat of interruptions to gas supplies from Russia.

That is no small issue. Russia and Ukraine have failed so far to reach an accord on gas supplies for the coming winter but agreed to meet again in Brussels in a week in the hope of ironing out problems over Kiev’s ability to pay.

An agreement was reached on the price Ukraine would pay Russia’s Gazprom as long as it paid in advance for the deliveries. But Moscow is still seeking assurances on how Kiev would find the money to pay. It’s likely the EU will have to step in there.

Nearing a gas deal

A pressure meter and gas pipes are pictured at Oparivske gas underground storage in Lviv region

Russian and Ukrainian energy ministers are due to meet European Energy Commissioner Guenther Oettinger in Brussels after presidents Petro Poroshenko and Vladimir Putin said they had agreed on the “basic parameters” of a deal to get gas flowing to Ukraine again this winter.

Russia cut off gas supply to Ukraine in mid-June following more than two years of dispute on the price and said Kiev had to pay off large debts for previously-supplied gas before it would resume supply.

Putin also threatened to cut gas supplies to Europe if Ukraine steals from the transit pipeline to cover its own needs this winter. Any interruption to flows to western Europe, via Ukraine from Russia, would deal another blow to already struggling EU economies.

French figures under microscope

French Finance Minister Sapin adjusts his tie while seated at the start of debate on France's 2015 budget at the National Assembly in Paris

France will submit its 2015 budget to the European Commission today and, after a respectable period of consideration, it is likely to be thrown right back.

Paris has confirmed it will yet again miss the EU’s debt limits, failing to achieve a budget deficit of three percent of GDP until 2017 four years after it should have done.

EU officials have warned they could use their powers to reject the budget outright – a political humiliation for Paris. French Finance Minister Michel Sapin ruled out substantive changes on Tuesday though he expressed hope that a rift could be avoided.

Greek confidence vote

A Greek and an EU flag flutter in front of the temple of the Parthenon during the takeover ceremony of the six-month rotation of Greece's EU Presidency in Athens

Greece’s ruling coalition will hold a confidence vote in parliament this evening in an effort to end speculation that the country may be facing snap elections early next year.

Prime Minister Antonis Samaras wants to use the vote to gain support for his candidate in a presidential vote. Under Greek law, parliament must be dissolved if a president cannot be elected. The radical leftist Syriza, which has a sizeable lead in opinion polls, has pledged to block Samaras’s pick.

Athens has begun talks with the EU and IMF inspectors on life after its bailout. The coalition is hoping an exit will rally Greeks fed up with years of austerity, but it faces a series of hurdles in pulling that off, including convincing EU/IMF lenders it can finance itself without problems.

Italian and Greek confidence votes

Greece's PM Samaras addresses the audience during the Economist Conference on "The big rethink for Europe, the big turning point for Greece" in Athens

You wait ages for a no-confidence vote then two come along on the same day. Neither are expected to cause governments to topple.

Greece’s ruling coalition will hold a confidence vote in parliament in an effort to end speculation that the country may be facing snap elections early next year.

Prime Minister Antonis Samaras wants to use the vote to gain support for his candidate in a presidential vote. Under Greek law, parliament must be dissolved if a president cannot be elected. The left-wing Syriza party, which has a sizeable lead in opinion polls, has pledged to block Samaras’s pick.

Shocking German figures

A new Mercedes AMG GT super sports car rim is seen during a factory tour for journalists at the Mercedes AMG headquarters in Affalterbach

After a stunning fall in German industrial orders for August – the 5.7 percent monthly drop was the largest since the global financial crisis raged in 2009 – industrial output for the same month has just plunged by 4.0 percent, also the biggest fall in five years.

After Europe’s largest economy shrank in the second quarter there had been hope of a pick-up in the following three months but the thrust of recent data suggests it will be lucky to achieve any expansion at all.

At the same time, the government – particularly finance minister Wolfgang Schaeuble – vehemently rejects calls from euro zone and G20 peers for greater efforts to get growth going.

Euro falling but no impact on inflation yet

Lithuanian 1 euro coins are pictured in the Lithuanian Mint in Vilnius

Euro zone inflation figures are due and after Germany’s rate held steady at 0.8 percent the figure for the currency bloc as a whole could marginally exceed forecasts and hold at 0.4 percent.

One upside for the currency bloc is the falling euro which has broken below its 2013 lows and is down almost nine percent from the peak it hit against the dollar in May. With U.S. money printing about to end next month and speculation intensifying about the timing of a first interest rate rise from Washington, there are good reasons to think that this trend could continue.

If it does, it would push the prices of imports up while making it easier for euro zone countries to sell abroad which should have an upward impact on both growth and inflation. The impact won’t be instant, however, as today’s figures will demonstrate.

The final lap

A "Yes" campaign poster is displayed on the Isle of Lewis in the Outer Hebrides

Three opinion polls last night all put Scotland’s anti-independence vote at 52 percent, the secession campaign on 48. If accurate, the “Yes” camp will have to move heaven and earth in the next 24 hours to turn the tables despite having dramatically narrowed the gap.

The towering caveat is that no one knows if the polls are accurate and if not, in which direction they have got it wrong. The latest trio showed between 8 and 14 percent of Scotland’s 4.3 million voters at least say they are still undecided.

Before the day is out we will see at least three more opinion polls – the final verdicts before the real voting starts. As things stand, the aggregated poll of polls has the race slightly tighter – at 51 to 49 percent.

Swedish shift

Opposition leader Stefan Lofven speaks at the election night party of the Social Democrats in Stockholm

Sweden’s centre-left Social Democrats topped the poll in Sunday’s election but fell well short of an overall majority to the extent that it will struggle to form a strong coalition.

The Social Democrats and the Greens and hard Left, who would be natural coalition allies, garnered 43.7 percent of the vote. The anti-immigrant far right emerged as the third biggest party to hold the balance of power with nearly 13 percent.

It looks like there will be plenty of time for market jitters before a government is formed.
What looks more certain is the ousting of the centre-right means years of falling taxes and liberal economic reforms may come to a juddering halt.