If you’re looking for Euro predictions, it may interest you to know that the Euro could be in for a tough time, with some major reasons for concern.
Italian national debt is second only to Greece’s.
Italy’s Finance Minister, Giovanni Tria, believes investor confidence is the biggest problem facing Italy. The third largest economy in the Eurozone has struggled to convince investors that it’s on a sustainable economic path. Since the anti-establishment government came into office in June last year, concerns have risen over Italy’s ability to pay back its debts.
There is concern due to the increase in public spending by the new coalition. Italy’s debt-to-GDP is around 130%.
Tria recently said the following: “I think investor confidence is Italy’s biggest problem. But confidence can be restored. I see a lot of international appreciation for Italy’s industrial system and for our economy. We need to boost our own domestic morale even in the short-term, but I think that our basis is very strong.”
Personally, I disagree with Tria and think Italy’s problems are more deep-seated and will not be easy to rectify.
Last month, the IFO institute released data showing that investor sentiment dropped to its lowest level in four years. Out of the eight countries that were analysed within the bloc, Italy had the weakest level of economic climate.
Italy officially fell into recession last month. This situation could have the potential to cause substantial Euro weakness, should the situation escalate.
Germany could face vehicle tariff. Will this cause Euro weakness?
There is further reasoning why the Euro could face a difficult period. Germany just narrowly avoided recession and, as the engine room of the bloc, this is a serious concern. There are threats from the US to put a substantial tariff on the automotive industry. This would hit the German economy hard and in turn the Euro.
The European Central Bank (ECB) has also recently ceased Quantitative Easing (QE), which is essentially pumping money into an economy to stimulate growth. At one point this was as much as €80 million in monthly increments. Recent data has been very poor and, without the support of QE, they could get worse.
Mario Draghi, the President of the ECB, spoke yesterday following the interest rate decision, which remains at 0%. He said that interest rates would be kept on hold until 2020. He also stated there would be a series of low interest loans to stimulate growth and boost investor confidence.
Growth and inflation forecasts were dropped, with growth predictions dropped from 1.7% to 1.1%
Buying Euros? Impact of Brexit
Despite this negative forecast for the Euro, if you have a trade on GBP/EUR, Brexit will remain the key driver. The probability of a no deal Brexit has substantially fallen and Brussels seems to be making small concessions on the Irish border. This could result in an 11th hour deal or more likely an extension, both of which should result in Sterling strength.
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