By Robert Greil, Chief Strategist, Merck Finck & Co
More than a half-decade after the start of the global financial crisis, Europe continues to struggle, although we expect to see accelerating growth from late 2015 onwards – as talk of the “Japanification” of Europe will begin to recede. The eurozone outlook remains most positive for former crisis countries, while the UK will also continue to outperform.
2014 marked a return to positive growth for the 18-nation eurozone economy, which grew 0.8% on an annualized basis in the third quarter of 2014 and is expected to expand by the same percentage for the full year, according to the European Commission (EC).
In November 2014, the EC said it anticipated 1.1% eurozone growth in 2015 (which we believe will be slightly higher, at 1.2%), followed by 1.7% expansion in 2016 – still below pre-crisis growth rates of around 2%.
While eurozone domestic demand and investment are increasing slightly, doubts remain about the breadth of overall recovery, especially in light of weakening confidence indicators and some disappointing hard-data trends in the fall of 2014.
SUPPLY & DEMAND
Moving forward, domestic demand will remain crucial to accelerated growth – particularly as the strength of EU exports continues to be affected by geopolitical risk factors, especially in Russia.
It is worth noting that, to date, the impact of the Russian crisis on EU exports has been limited: Russia’s share of total EU exports stands at below 5%, and demand for Western European products declined by a manageable 14% during the first phase of the crisis.
Even if the direct impact on overall trade is relatively small in absolute terms, the potential negative influence on economic confidence remains an important risk factor.
At the same time, EU exports also remain vulnerable to the underlying weakness of emerging market economies such as Brazil (which is expected to witness growth of barely 0.25% in 2014).
Nevertheless, relatively high-growth regions like the US and large parts of Asia, including China, continue to support demand for EU products, as does the ongoing weakness of the euro. That trend is counterbalanced by sluggish export demand within the eurozone.
Turning to key domestic markets, Germany and France, the eurozone’s two largest economies, narrowly avoided recession in the third quarter of 2014: on a quarter-on-quarter basis, Germany scraped past with 0.1% growth and France recorded 0.3% expansion, mainly due to public spending.
Despite recent economic indicators that have sparked concern among policy-makers, German consumer confidence remains high – supported by the country’s robust labor market. The country is expected to post full-year 2014 growth of 1.3%.
France, the second-largest EU economy, while continuing to suffer from unclear economic policies and very low levels of business confidence, nevertheless grew faster than expected in the third quarter of 2014, making it more likely that the Hollande government would achieve its full-year growth target of 0.4%. The country is expected to record modest 0.7% GDP growth in 2015, as private consumption remains subdued and investment further contracts.
In Italy, the Renzi administration has been raising new hopes for badly needed structural reforms that have not yet been realized. Partly as a consequence of that delay, after forecasting in May 2014 that annual Italian growth would reach 0.6%, by November the EC had slashed its full-year forecast to 0.4% contraction.
In relative terms, the eurozone outlook is unquestionably most positive for former crisis countries. Spain – which faces general elections in the fall of 2015 that may see considerably stronger support for populists – continues to reap the benefits of structural change, including in key areas such as the labor market.
Indeed, the country’s unemployment rate declined to 23.7% in the third quarter of 2014, down from 24.5% in the previous quarter and representing the lowest level in three years. The overall economy is simultaneously moving in the right direction, with 2014 marking a return to positive growth of roughly 1%, expected to increase to 1.7% in 2015.
The outlook is also markedly improved in Portugal and Greece, both of which face key elections in 2015 – including a Greek presidential vote that could trigger advanced parliamentary elections and change the current pro-euro political landscape in Athens. While such elections could provoke a revival of the euro crisis, we regard the overall risk of such a scenario as low.
Finally, the EU’s fastest-growing economy deserves special mention: after being bailed out in 2010, Ireland is expected by the European Commission to expand by 4.6% in 2014. Almost as importantly, the country’s budget deficit is shrinking, and should fall to 2.9% in 2015.
Outside the eurozone, the UK will continue to outperform, with GDP forecast to expand by 3.5% in 2014 and 2.9% in 2015, according to the Bank of England, although we believe that these figures may be overly optimistic and expect 2015 GDP to expand by 2.6%.
Reflecting ongoing positive base trends in both consumption and investments, the services-dominated UK economy should nevertheless witness robust 2015 growth, slightly below 2014 levels but still healthy in light of normalizing indicators from very high levels.
While the US Federal Reserve is expected to be the first major central bank to increase its key rate (sometime around mid-2015), the Bank of England will likely come a close second, following on the heels of the Fed.
The European Central Bank (ECB) decided in January to extend its ABS and Covered Bond buying program to sovereign and supranational bonds starting in March – and to purchase €60 billion in these bonds monthly until at least September 2016, resulting in an overall volume of €1.14 trillion. Supported by this considerable money printing, Mario Draghi hopes to prevent longer deflationary trends in the eurozone as well as to support the banks’ credit lending – especially to small and mid-sized companies in periphery countries.
Based on early lending trend improvements, ECB measures should gradually accelerate the bank credit cycle over the course of 2015. That trend will be supported by increasing European consumer confidence levels, decreasing unemployment levels (expected to decline at least slightly from the 11.5% level recorded in October 2014), ongoing wage increases and greater optimism among entrepreneurs on the back of positive demand.
Moving forward, both eurozone household spending and investments should rise moderately. As a consequence, we expect to see increased credit demand. Nevertheless, until money starts flowing rapidly into the real economy – as it is in the US and Japan – significant amounts of capital will continue to find a home in financial markets.
Together with slowly improving monetary aggregates, the still widespread deflationary environment, especially in the European periphery, will not recede overnight. However, the situation should normalize, supported by the likely stabilization of commodity prices.
We expect this to result in an average 1.0% inflation rate in 2015 – while consumer price increases will likely remain close to 2% in the UK. Therefore, deflationary concerns should fade over 2015 in most parts of Western Europe, and no longer represent a core concern by year’s end.
The ECB continues to buy time for governments to enact necessary structural changes, relieving the pressure on them to take quick and decisive action. For that reason, the eurozone’s core problem – widespread high budget deficits – will certainly not be solved in 2015.
Indeed, at a time when the appetite for austerity measures is very limited, European structural reforms are likely to continue to disappoint. That is made especially clear when decision-makers like International Monetary Fund (IMF) Managing Director Christine Lagarde call for the EU to consider relaxing its Maastricht rule that debt-to-GDP ratios may not exceed 60%. (It is worth noting that, EU-wide, debt-to-GDP ratios averaged 93% in mid-2014.)
As well as the relaxation of Maastricht criteria, Lagarde, among others, has also been encouraging greater public investments, which are now in the pipeline, including the EU’s new plan to initiate €300 billion in investments over the next three years and the German state’s intentions to invest €10 billion through 2018. Expect further such programs to be announced in the coming months.
Such public investments – together with slowly improving labor-market conditions, lower commodity prices and an ongoing weak single currency – support our view of stronger growth over the coming years.
We see the foundation for slightly increased optimism about the 2015 outlook for Europe, including accelerating growth dynamics from late 2015 onwards.
Indeed, in 2015, the eurozone should be characterized by moderately positive trends, especially in the second half, making 1.2% annual growth a realistic scenario, despite slightly lower projections by the EC, which said in November 2014 that the single-currency area should nevertheless reach 1.7% annual growth by 2016. In the meantime, we expect to see a change from deflationary worries to normalizing price trends, mirrored by a slight rise in inflation.
Talk of the “Japanification” of Europe will therefore most likely recede in 2015. Instead, as inflation expectations slowly rise, the threat of reduced purchasing power could begin to return to the European agenda – as it already has in the UK, where, in real terms, cash in savings accounts has lost almost one-fifth of its purchasing power since 2009.
In any case, debate in the UK will continue to be dominated by a very different set of topics, including the likely turn in the interest-rate cycle and a potential EU exit, depending on the outcome of May 2015 parliamentary elections that could result in much greater influence for anti-Europe groups such as the UK Independence Party (Ukip).
England soccer star Rashford nets younger buyers for Burberry
By Sarah Young
LONDON (Reuters) – Burberry stuck to its full-year goals on Wednesday after a media campaign fronted by high-profile English soccer star and social justice advocate Marcus Rashford drew a younger clientele to the British luxury brand.
Higher full-price sales would boost annual margins and Asian demand remained strong, Burberry said, while warning that it could suffer more sales disruption from COVID-19 lockdowns.
Manchester United striker Rashford, 23, has won plaudits for his campaign to help ensure that poorer children do not go hungry with schools closed during the pandemic.
A first coronavirus wave last year cut Burberry’s sales by as much as 45% before a bounce back on strong demand in mainland China and South Korea, which continued in the last few months.
Shares in Burberry were up 5% to 1,825 pence at 0905 GMT, with Citi analysts saying that improved sales quality from fewer markdowns would drive full-year consensus upgrades.
Burberry’s 9% sales decline in its third quarter was worse than the 6% fall in the second, and the company said that 15% of stores were currently closed and 36% operating with restrictions as a result of measures to curb COVID-19’s spread.
“We expect trading will remain susceptible to regional disruptions as we close the financial year,” Burberry said, adding that it was confident of rebounding when the pandemic eases given the brand’s resonance with customers.
In the third quarter, comparable store sales in Europe, the Middle East, India and Africa declined 37%, hit by shops shut in lockdowns and a lack of tourists visiting Europe, but in the same period, it posted sales growth of 11% in Asia Pacific.
Burberry said that Britain’s new relationship with the European Union would cause headwinds, warning of a modest increase in costs to comply with new rules and also the impact of an end to a scheme for VAT refunds for non-EU tourists.
This would make Britain a less attractive destination for luxury shopping when tourism returns after the pandemic, Burberry said, adding that it would try to mitigate the effect.
(Reporting by Sarah Young; Editing by Kate Holton, James Davey and Alexander Smith)
Alibaba’s Jack Ma makes first live appearance in three months in online meet
SHANGHAI (Reuters) – Alibaba Group founder Jack Ma met 100 rural teachers in China via a live video meeting on Wednesday morning, in the businessman’s first appearance since October, triggering a sharp jump in the Hong Kong listed shares of the e-commerce giant.
Social media speculation over the whereabouts of China’s highest-profile entrepreneur swirled this month after news reports that he missed the final episode of a TV show featuring him as a judge, amid a regulatory clampdown by Beijing on his sprawling business empire.
Ma had not appeared in public since Oct. 24, where he blasted China’s regulatory system in a speech at a Shanghai forum that set him on a collision course with officials, leading to suspension of a $37-billion IPO of Alibaba’s financial affiliate Ant Group.
Tianmu News, a news portal under Zhejiang Online, which is backed by the provincial Zhejiang government, first reported that Ma had met with the teachers via a live video conference on Wednesday.
The Jack Ma Foundation said that Ma participated in the online ceremony of the annual Rural Teacher Initiative event on Wednesday. Alibaba Group also confirmed that Jack Ma attended the online event.
Alibaba’s Hong Kong-listed shares jumped more than 6% after the reports of his reappearance, compared with a 0.64% rise in the Hang Seng index.
Ma’s public appearance comes as Alibaba plans to raise at least $5 billion through the sale of a U.S. dollar-denominated bond this month. Reuters reported the bond proceeds could reach $8 billion, which the e-commerce leader was likely to use for general corporate expenditure.
Alibaba is also the target of an antitrust investigation launched last month by Chinese authorities, who have in recent months accelerated a crackdown on anticompetitive behaviour in China’s booming internet space.
In the 50-second video, Ma, dressed in a navy pullover, spoke directly to the camera from a room with grey marble walls and a striped carpet. It was not clear from the video or the Tianmu News article where he was speaking from.
He addressed teachers receiving the Jack Ma Rural Teachers Award, who in previous years would have attended a ceremony organised by the Jack Ma Foundation in the Chinese seaside city of Sanya.
“We cannot meet in Sanya due to the epidemic,” he said in the speech, which did not discuss his whereabouts. “When the epidemic is over, we must find time to make up for everyone’s trip to Sanya, and then we will meet again!”
Xie Pu, founder of Chinese tech website Techie Crab, said the media and public had over-interpreted Ma’s move to lay low and that his step away from the public spotlight should not have been seen as a problem for Alibaba.
“We shouldn’t over-interpret his reappearance into public view this time, said Xie Pu, founder of Chinese tech website Techie Crab. “Alibaba still has a good governance structure — there are partners and a board of directors.”
(Reporting by Brenda Goh in Shanghai, Kane Wu and Sumeet Chatterjee in Hong Kong, Yingzhi Yang in Beijing; Editing by Tom Hogue and Gerry Doyle)
ComplyAdvantage Releases State Of Financial Crime Report For 2021
Designed as an must-have strategic roadmap for compliance teams, the comprehensive report covers financial crime insights related to fraud, cyber, and money laundering, the rise of crypto,
and the ever-changing sanctions landscape
ComplyAdvantage, a global data technology company transforming financial crime detection, today announced the availability of the firm’s much anticipated report The State Of Financial Crime 2021. Designed as a strategic guide for global compliance teams, the report lays out the many emerging threats that governments and financial institutions will face in 2021, along with prescriptive recommendations for implementing best compliance practices for combating financial crimes.
The research on which The State Of Financial Crime 2021 report is based was administered in November and December 2020. Interviews were conducted with 600 C-suite and senior compliance decision makers across North America, Europe, and Asia Pacific. The respondents represented enterprise banking, investments, crypto, insurance organizations, and fintechs.
One of the biggest challenges that compliance teams face is keeping current on the rapidly evolving regulations, and the advances of criminal behavior while balancing their organizations’ risk appetite. Risk indicators are also becoming harder to spot as the amount of information available grows exponentially and the speed of change gathers pace. This is why ComplyAdvantage has dedicated the company’s resources and anti-money laundering (AML) expertise in order to help compliance executives mitigate regulatory risks related to the most extreme AML financial crimes.
The State Of Financial Crime 2021 delves into the most important financial crime trends that Compliance Officers are most concerned with in the coming year. Specifically, these trends include increased fraud related to COVID-19 relief; risk vulnerabilities related to inconsistencies in global AML and counter financing of terrorism (CFT) system; the growth in sophistication of computer and mobile-enabled cybercrimes via payment systems; the continued use of sanctions as a tool of first resort and more.
A sample of key insights from the report include:
- SARs filing was on the rise with 74% of respondents saying they filed more SARS in 2020 than the previous year
- 93% of respondents stated that real-time AML risk data would improve their compliance operations
- Cybersecurity and third party risk management were noted as organizations’ biggest compliance-related pain points in 2020. With 54% of respondents ranking cybersecurity as a top pain point.
- 62% of respondents plan on upgrading their legacy systems in 2021.
- 54% of respondents plan on replacing or upgrading their transaction monitoring system in 2021.
“Due to the massive economic, political and social disruption brought about by COVID-19, international crime syndicates, rogue nations, global terrorists and cyber-criminals have become increasingly more aggressive, “said Charles Delingpolefounder and CEO of ComplyAdvantage. “Therefore, we felt it was imperative to prepare Compliance Officers and their teams for the potential onslaught of financial crimes driven by nefarious organizations.
Already the preferred choice of some of the world’s largest banks, enterprises and high-growth fintechs, ComplyAdvantage uses machine learning and natural language processing to help regulated organizations manage their risk obligations and prevent financial crime. The company’s proprietary database is derived from millions of data points that provide dynamic, real-time insights across sanctions, watchlists, politically exposed persons, and negative news. This reduces dependence on manual review processes and legacy databases by up to 80% and improves how companies screen and monitor clients and transactions.
ComplyAdvantage releases The State Of Financial Crime 2021 a comprehensive report covering financial crime trends related to fraud, cyber, and money laundering. #compliance #financialcrime #AML #antimoneylaundering #cybercrime
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