MNI POLICY:Slowdown Fears Exaggerated: Bundesbank's Wuermeling

By Luke Heighton

     FRANKFURT (MNI) - Global growth is returning to something closer to normal,

the Bundesbank's head of banking supervision and risk control said Friday, while

Germany's economic engine "remains intact."

     Joachim Wuermeling, a member of the Bundesbank's Executive Board, said

increasing private household consumption, rising wages and the continuation of

favourable financing conditions meant the German economy was on the road to

overcoming a "weak phase".

     Here are the key points from the speech in Essen:

     --Wuermeling said fears of a global economic slowdown have been

exaggerated. This was particularly true, he said, given that in 2017 industrial

production, world trade and investment had expanded relatively strongly,

providing a significant base effect. Meanwhile, "the drivers of global recovery

remain intact".

     --Similarly, the fact that problems in Argentina and Turkey did not trigger

a conflagration in emerging markets should be regarded positively, Wuermeling

said, while a far-reaching trade war has not yet occurred. Rather, the current

talks between the U.S. and China are a positive sign.

     -- Economic policies in the U.S. and China are already responding to the

changing growth outlook. In China, additional measures have been taken to

support the economy, while the Fed has stated that it will be patient with

regard to possible further interest rate hikes.

     -- Eurozone growth did slow "considerably" last year, with sector-specific

and country-specific factors adding to weaker impulses from the international

environment. Nonetheless, "favourable financing conditions coupled with

continued employment growth and wage increases should ensure continued growth in

the euro area. In addition, a relaxation of fiscal policy in Germany (and in

other member states) has a supportive effect."

     -- Real GDP in Germany increased by an average of 1.5% in 2018, much slower

than in the previous year (+2.5% adjusted for calendar effects), according to

Federal Statistical Office preliminary estimates. In the third quarter of 2018,

Germany's economy shrank slightly, "due mainly to supply side difficulties of

the German automakers."

     --"Beyond the current weakness, however [...] the economic engine remains

intact. Positive impulses are to be expected in particular from the consumption

of private households, because the labour market situation continues to be

excellent and wages are rising sharply." After overcoming the weak phase, the

German economy is expected to grow at a similar rate to its capacity in 2020 and

2021.

     --In addition to trade disputes and geopolitical conflicts, Europe is

currently primarily preoccupied with the risk of Brexit, and there is still

uncertainty about what the future relationship between Britain and the EU will

look like. The banking sector's preparations for a hard Brexit "are making good

progress. But not only the banks must be prepared, but also their clients from

the real economy. Here I see some catching up" to be done.

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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