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OPINION

Seven Days

Seven Days
January 15, 2015
Seven Days

German model

Balanced budget

It has long been held up as a paragon of economic virtue in Europe and, even in these straightened times, Germany is patting itself on the back for achieving a balanced budget - the first time it has done so since the end of the 1960s. Hitting its target a year ahead of schedule has been made possible by a rising tax take and low interest rates on debt repayments and means it can continue to encourage budgetary discipline to the rest of the eurozone from a position of authority.

Deflation looms

UK slipping

Inflation around the world is in retreat, hurried on its way by the continued slide in the oil price. After the eurozone last week confirmed that it has slipped into deflationary territory, figures from the UK this week showed the rate of inflation halved between November and December, registering just 0.5 per cent at the turn of the year. The news means Bank of England governor Mark Carney will have to pen a new letter to the chancellor to explain why inflation has shifted so far from the Bank's 2 per cent target. The ongoing weakness in the oil price suggests the inflation rate could fall further but it does mean some potential respite for consumers who could see sustained real wage growth this year.

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Checking out

Corner turned?

Morrison was the last of the major quoted supermarkets to issue Christmas trading figures this week and chose the event to also announce the departure of its chief executive Dalton Philips after five largely underwhelming years at the helm. But like its peers, Morrison's Christmas performance was not quite as terrible as most expected, albeit against weak comparatives from last year. And this has led some sector commentators to suggest the sector may have stopped the rot for now, although no-one expects a rapid upturn in fortunes. Meanwhile, Tesco chief executive Dave Lewis will have been cheered by Kantar Worldpanel data which suggested it was the best of a bad bunch in terms of Christmas trading at the major 'big four' grocers.

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QE coming?

ECB to act

Many traders are pinning their hopes on next week's pivotal European Central Bank meeting firing the starting gun on QE 'proper' in the eurozone. Rumours are intensifying that ECB chief Mario Draghi will announce the commencement of buying of eurozone sovereign debt next Thursday with the main differences of opinion being over the size of the bazooka Mr Draghi will choose to fire. This week analysts at RBS suggested that the ECB will be forced to expand its balance sheet to €4.5 trillion if it is to pull the eurozone out of its deflationary spiral. This figure would mean buying up sovereign bonds to the tune of €2 trillion-plus over a prolonged period of time.

North Sea chill

Spending slump

The oil price slide is putting additional pressure on the North Sea oil and gas industry. Participants in the sector are already calling on the chancellor to slash taxation on North Sea production in an effort to protect margins but job cuts are on the way and investment in projects is forecast to fall by as much as half this year. With the price of oil sliding further this week, Brent crude threatened to slide below $45 (£29.49) a barrel, production from the North Sea could fall by 10 per cent this year according to analysts.

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China crisis?

Surplus concern

The disparity between Chinese exports and imports remains stark. Exports from the country have performed well but incoming trade remains moribund, prompting the third highest trade surplus on record in December when the gap between the two was $49.6bn (£32.50bn), although this fell from the record high of $54.5bn recorded the month before. Over the course of 2014, exports from China rose by 6.1 per cent, with noticeable acceleration towards the end of the year, but imports grew by just 0.4 per cent. The domestic economy is still struggling to pick up with the latest signal being consumer price inflation of just 1.5 per cent in December and producer price inflation, which measures wholesale prices, showing a decline of 3.3 per cent.