Germany cuts GDP forecasts by half (Daily analysis 30.01.2019)

30.01.2019 13:30|Marcin Lipka

Prime Minister Theresa May is once again taking over the negotiating initiative on the Brexit, which weakens the pound. The Fed should be dovish rather than hawkish. The zloty without major changes against the euro, the EUR/PLN quotations are still below the 4.30 level.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • 2:15 p.m.: Change in the payrolls in the private sector by ADP (estimates: 181k).
  • 8:00 p.m.: Publication of a statement after the Federal Reserve meeting (estimates of interest rate changes: no change in the range of 2.25-2.50%).
  • 8:30 p.m.: Press conference after FOMC meeting.

Negative resonance of votes in the House of Commons

Prime Minister Theresa May managed to defend a modified version of the government's Brexit. Support for the renegotiation of the backstop conditions and probably also the extension of the transitional period until the end of 2021 obtained a majority of votes and is starting to function as London's baseline plan. This is good news, as a compromise was reached within the government camp (also with the DUP), which can be accepted by the House of Commons. Unfortunately, other information is less optimistic.

The support for the amendments which provided an extension of the time period of staying in the EU, if the government's Brexit plan collapsed, was insufficient for the parliament to take the initiative in formulating a plan to leave the EU and then reduce the prospect of a chaotic exit from the EU. The pursuit of very close ties between the UK and the EU after yesterday's votes should also be postponed. That is negative news for the pound.

Another alarming issue may be the fact that the new May plan will be very coldly adopted in Brussels. Not only does it appear after months of negotiations and the already agreed Brexit conditions, but it also involves replacing the backstop with other solutions to avoid the border in Ireland. Unfortunately, London is not in a position to present these alternatives. If they had already existed, they would have been included much earlier in the exit document.

For many EU countries, an unspecified backstop is likely to be acceptable, taking into account, in particular, the risks related to chaos in the Brexit scenario without an agreement. However, for the Republic of Ireland, this plan will be very difficult to accept, bearing in mind the historical context of the events on the island.

Strong cuts of Germany GDP

For a long time, we have been pointing out that the forecasts for German GDP are too optimistic, taking into account local and global events over the past months. Today it can be said that concerns about the very slow development in Germany have been confirmed.

Next year, according to estimates published at midday, the German economy will develop at a rate of only 1%. Previously, official forecasts assumed growth of 1.8 %. This means that the prospects for development have been reduced by almost half.

Peter Altmaier, German Economy Minister, quoted by Bloomberg, said that external factors (e.g. Brexit or foreign trade uncertainties) were the main reason for the revision of forecasts. If these forecasts work, the current year will be the worst for the German economy in 6 years.

Calm as zloty

Again, not much interesting happens on the Polish currency market. The zloty remains stable in relation to the euro. Due to small changes in the EUR/USD pair, also the PLN pair moves within a relatively limited fluctuation range.

Today there will be two important pieces of information from the US market. This will be the ADP's reading for January, which is unlikely to disrupt US currency quotations if new payrolls in the US private sector remain close 200,000.

Slightly more fluctuations on the dollar (also on USD/PLN) can be seen after 8:00 p.m. when a statement will be published after January's FOMC. The message itself is unlikely to change significantly (although, for example, household consumption may no longer be described as "strongly increasing"). It is also a question of softening the suggestion of further interest rate increases, although the very attitude suggesting a tightening of monetary conditions will be maintained for the time being. A press conference should also be more dovish than hawkish. Jerome Powell, Chairman of the Federal Reserve and President of the FOMC, will probably pay attention to the risks associated with foreign trade, the government shutdown and Brexit. As a result, the pause in interest rate increases will be maintained, and the further monetary tightening will be burdened with many conditions. This could harm the dollar in the evening.


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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

See also:

29 Jan 2019 16:44

Calm situation on the market won't last for long (Afternoon analysis 29.01.2019)

29 Jan 2019 14:10

A lot of signals but limited changes (Daily analysis 29.01.2019)

28 Jan 2019 15:43

Stable situation on the zloty (Afternoon analysis 28.01.2019)

28 Jan 2019 13:14

Waiting for new signals (Daily analysis 28.01.2019)

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