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Editorial issue n. 67

This post is also available in: Italiano (Italian)

The economic situation is quite unstable: on one side, deceleration of economic growth in the Eurozone is more and more sensible, on the other side the same uncertainty on the future of UE the same, are generating instability and fears in stock exchanges and then, as a consequence, in all industrial sectors.

The growth of politic groups which sustain anti-UE ideologies are surely worrying such as the continuous contrasts among members state. Orders dropped only mildly in the first quarter, but current levels are 10% higher compared to the same period last year. Quarterly trade indicators scored lower than in the previous quarter – dragged down by the strong Euro and disputes over tariffs. In spite of this, we exported 10% more than in the first quarter of 2017. As a matter of fact, imports from the Americas plummeted by -95% over the year.

The EU and US have agreed to work towards a close-to-zero tariff policy. Overall, managers in the machine Tool sector remain optimistic about the third quarter. Concerning Far East, economic growth in the region is projected to lose some traction. Q2’s positive export growth performance in the region did not reflect a renewed momentum in global trade but rather the front-loading of production and shipping ahead of the implementation of trade tariffs between China and the United States on 6 July. Moreover, investment dynamics worsened in the region as
economic weaknesses in key global players, including China and the European Union, and mounting geopolitical risks weighed on investor sentiment. This was demonstrated by the broad deterioration of the region’s manufacturing PMI readings in July. Along with trade war risks and slowing global growth, the recent
selloff in emerging markets has led most currencies in the region to depreciate and poses additional risks to East-and South-Asia’s economic outlook. While the impact has been broadly limited for now, with the notable exception of Pakistan, more episodes of capital outflows could seriously hit the region’s financial markets
and put additional strain on the countries’ external positions.

In USA, Economic growth is strengthening to about 3% largely due to a substantial fiscal boost. Employment growth remains robust which, coupled with buoyant asset prices and strong consumer confidence, is sustaining income and consumption growth. Business investment is projected to strengthen as a result of major tax reform and supportive financial conditions. A pick-up in the world economy is underpinning export growth, although tensions have emerged on how best to reduce barriers to trade. Fiscal policy is set to loosen substantially. As spending appropriations are determined, they should prioritise boosting the productive capacity of the economy, such as by supporting infrastructure investment. Fiscal policy combined with structural policies can also help those on the margins of the labour force into employment. As macroeconomic policy rebalances, the
projected gradual withdrawal of monetary accommodation is needed to ensure that inflation returns to target and inflation expectations rise to their historical norms. Heightened risks in the non-financial corporate sector have emerged. It is a confused moment, in which it is difficult to foresee what will be, even in short term. Political instability in Middle East or in Northern Africa, the choices of Turkey in Syrian scenario, the variables of Mid-term election in USA and European elections in next May will make uncertainty even worse.

We live in a period that is quite difficult to understand, when contrasting signal are surging, from rising economies to politic uncertainty, from positive growth to fear for decrease and stagnation. Positive long-lasting trends of past decades are, indeed, matter of past, now we are forced to work with orders for one month maximum: programming is not so easy for company, what reduces margins that are already low. The best solution is cooperation and widen markets and area of interest, that could not be easy for small companies, but is almost possibile, following the model of many companies based in Far East, taking into consideration the differences between the two productive tissues.

(sources: oecd and cecimo surveys and forecasts)