This month we put the spotlight on Russia, South Africa and Turkey. Both Russia and South Africa are suffering from a dearth of investment in the commodity sector. In some areas this is severely hampering output. For instance, Russia’s oil output rose by only 2 % in 2007 (average 2000 – 2003: + 8 %), in South Africa gold output has dropped by more than 30 % over the past five years. The Turkish economy grew by only around 4 % real last year – the worst result since the 2001 crisis year. 

Our Special Focus takes a look at the structure of European mortgage markets. The market is very varied, with major differences between national market segments. However, in terms of financial stability, there are distinct advantages to this heterogeneity. Pushing further ahead with harmonization beyond the market processes sparked by competition and consolidation would therefore appear justified only if this promised significant benefits for prosperity and growth in Europe by leveling large differentials in interest rates on the sub-markets.

And, of course, you will also find our monthly reports on the USA, the euro area and Germany.

Enjoy!

 

The economic downside risks remain high. Softer labor market data has fueled the debate about a stimulus package. The Fed is likely to further reduce the key interest rate at the end of this month.

The latest sentiment indicators do not paint a rosy picture, but do not give too bleak an outlook either. Even if the increase in GDP in 2008 is almost one percentage point lower than last year, the growth drivers will remain intact, which will be more evident again in 2009.

Although private consumption clearly disappointed last year, we expect it to become the mainstay of economic development in 2008. This is indicated above all by the sustained positive trend on the labor market. This impetus is also necessary as the traditional economic driver foreign trade is losing momentum.

It is not only the hunger for commodities among emerging economies such as China and India that is moving the global market and driving commodity prices up. There is also scant signof a let-up on the supply side. In many countries the output of awide range of commodities is being hampered by local dislocations.

Mortgage credit markets in Europe will stay sharply in focus in 2008 for two reasons. One is the much-debated issue of how far the US subprime debacle could spill over into Europe. Given the stormy development on submarkets such as Ireland, Spain or the UK, for which there is no exhaustive fundamental explanation, rising risk premiums and interest rates would seem to point to thei nevitability of marked corrections. On the other hand, publication by the European Commission shortly before Christmas of the White Paper on the Integration of EU Mortgage Credit Markets rekindled discussion on the appropriate regulation of EU mortgage markets. Rules on early repayment are the major bone of contention, with legislative measures perceived as the most effective option. However, their actual use is made contingent onfurther impact assessments. So the threat to put an end to the German practice through the European channel has simply been deferred, not dismissed.