The UK and the EU stepped up the pace of negotiations as the March 29 Brexit deadline approached; Eurozone growth forecasts dropped again, heightening Italian-French tensions; Russia's central bank held rates steady.
“We can no longer secretly assume that by the end of the year we will have raised more taxes than we planned to.”
Brexit: Dublin Down
Despite the chilly reception she received in Brussels, UK Prime Minister May continued to press her case in Dublin, seeking a way to square the circle on the Irish/UK border issue. With the result of her whirlwind negotiations unclear, many stakeholders are making contingency plans for a no-deal Brexit on March 29. One example is the Trans-European transport network (TEN-T), which comprises ports and shipping lines using the North Sea routes for direct shipments between Dublin and the rest of the 27-member EU. The affected ports have successfully negotiated new terms on their own, which are now awaiting final approval by EU ministers and the European Parliament.
Meanwhile, U.S. Ambassador to the EU Gordon Sondland added to trade concerns by reminding interviewers in Brussels that “…the good faith and understanding that existed [at the time of a joint U.S. – EU trade meeting in July] has not been followed through on”.
Eurozone growth: Lowered expectations
The European Union lowered its 2019 forecast for full-year economic growth in the 19-nation group using the euro as its common currency. For the current year, it projected growth of 1.3% (vs. 1.9% in November); and for 2020, 1.6% vs 1.7% in November. That’s a substantial comedown from the 2.4% growth seen in the eurozone in 2017.
The drop in the official forecast comes after Italy fell into recession at the end of 2018, and after the World Bank lowered its own forecast for global growth. The speed of the slowdown may be one factor feeding tensions between eurozone members Italy and France, which have gotten serious enough for France to recall its ambassador from Rome. The cause, over and above barbed commentary from Italy’s populist government: Italy’s deputy prime minister Luigi Di Maio met Tuesday with a leader of the anti-Macron “Yellow Vest” protestors.
Russia: Nyet to the flock of doves
Russia’s central bank decided against lowering its key interest rate from 11%, citing the uncertainty in global crude-oil prices. The decision was the fifth in a row to keep rates on hold, in a stated attempt to steer inflation expectations downward, despite calls for lower rates by business groups.
Note: All market and related data Source: Bloomberg, as of February 8, 2019.