Our Regional Focus this month takes a look at non-EMU Western Europe, highlighting the UK, Sweden and Switzerland. Although all three countries recorded surprisingly strong growth in the first quarter of 2008, there is already evidence of a slowdown in the course of the year. While we do not see any further interest rate moves in Sweden for the time being, a possible let-up in inflationary pressure in Switzerland might give the Swiss central bank scope to lower rates towards the end of the year. The UK is likely to tread cautiously in lowering rates.

In our second Regional Focus we put the spotlight on the Latin American trio Brazil, Mexico and Peru. Latin America is benefiting from the current commodity boom. Not only is the region rich in natural resources, it is also the world's largest net exporter of foodstuffs. With their commodity exports (Brazil: food, Mexico: crude oil, Peru: copper), the countries under review provide a representative cross-section of the region. Despite the booming commodity sector, dynamic growth in all these countries is being driven above all by buoyant domestic demand. At present the region thus looks to be extremely robust against any slowdown in the global economy.

Our Special Focus investigates the factors behind Germany's sustained success on the export front. Despite the persistent strength of the euro, German exports have risen steadily since 2004. Over this period Germany's share in real world trade has climbed from 8.8 % to 9.4 %. Unit labor costs in particular appear to be the main factor behind this success.

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

Enjoy!

 

Real GDP rose by a mere whisker at the beginning of the year. Although the current quarter also seems to have got off to a bad start, massive support is now coming from fiscal policy.

Sentiment and capacity utilization are heading south, the jobless rate is no longer falling. Nonetheless, the drop in the inflation rate will not suffice for the ECB for now. We do not expect a key rate cut until September at the earliest. Narrowing interest rate gaps to the US are likely to weaken the euro.

After the surprisingly strong start to the year, the German economy is expected to slow down appreciably as early as this quarter. Even though the economy is not likely to pick up markedly before the fourth quarter, GDP still looks set to grow at a rate of over 2 % this year.

The three countries under review recorded surprisingly strong growth at the start of the year. However, there are already tell-tale signs of a slowdown as the year progresses. Rising energy and food prices are adding to inflationary pressure. The Bank of England in particular finds itself in a predicament.

The battle for increasingly scarce foodstuffs is intensifying, sparking demonstrations, export restrictions and crisis meetings at the highest level. Whereas the soaring prices are clearly bad news for most of the world’s regions, they are much more positive forLatin America. There, the explosion in food prices has triggered rising domestic consumer prices, but has at the same time led to high export surpluses in foods.

 

German exports have expanded extremely strongly in recent years. On the National Accounts definition real exports have risen by an average of around 9 1/2 % since 2004. Over the same period Germany’s share of real world trade has risen from 8.8 % to 9.4 %, having slipped slightly at the beginning of the new millennium. The gains have been made even though exporters have been grappling with a persistently strong euro for some time now. In the last two years alone the euro rose by some 30 % against the dollar, pushing up the cost of German exports by the same percentage in purely arithmetical terms. This undermines the German economy’s price competitiveness. Against this backdrop, how can Germany’s success on the export front in recent years be explained?