Angela Merkel’s Christian Democratic Union (CDU) bloc enjoyed a resounding victory in Germany’s elections last Sunday, although her party fell short of an overall majority of seats in the Bundestag (Parliament), and its preferred coalition partner, the Free Democrats, failed to achieve the five per cent threshold to be represented.
The pro-business CDU-led bloc achieved its best result since 1990 and only narrowly missed obtaining an absolute majority. This means Merkel will probably have to form a coalition with the left-of-centre Social Democrats (SPD), which came second, or the Greens.
Meanwhile, global money managers are starting to position themselves for the inevitable October drama, as the US government pushes off a default on its obligations. The current fiscal year ends tomorrow and Congress remains bitterly split over spending, in particular over President Barack Obama’s landmark healthcare law.
The Obama administration warned US Federal agencies to prepare for a possible government shutdown that could hobble the US economy, as Congress wrangles over a fast-approaching Budget deadline. Should agreement fail to be reached, several government agencies will close on Tuesday, placing hundreds of thousands of non-essential staff on unpaid leave.
Finally, the euro area manufacturing and services growth accelerated in September to their fastest rate in over two years as the composite Purchasing Managers’ Index (PMI) rose to a 27-month high of 52.1 from 51.5. PMI readings above 50 indicate expansion.
September’s reading topped expectations in a survey of economists by Bloomberg News of 51.8, with the services sector reading rising and exceeding forecasts but the manufacturing sector unexpectedly falling. This was a pattern that was also evident in Germany and France.
According to Markit Economics, the eurozone data adds to “growing signs that the region is recovering from the longest recession in its history”, and is consistent with GDP growth of 0.2 per cent.
This article was compiled by Bank of Valletta for general information purposes only.