New prospects for the Euro with Croatia’s entry into the Eurozone
Following the news of Croatia’s accession, the euro has gained much-needed confidence that will allow 4 million more people to use the single eurozone currency to buy and sell goods and services. After nearly a year of playing second fiddle to the US dollar, the euro could be supported by other factors, starting with the European Central Bank’s (ECB) increasingly tight stance on monetary policy.
Croatia is the 20th member of the euro zone and its GDP for September was 5.2% on an annual basis. The country’s economic growth will contribute to the value of the euro zone and thus the single currency.
Although the Euro monetary system has received much criticism, the fact is that the Euro accounts for half of the world’s most traded currency pairs, the other half being the US Dollar. Can the new members of the Eurozone catch up with what Brexit took from them? Although the UK was never part of the euro zone and preferred to retain the pound sterling, the euro was in high demand in the UK as there were no customs duties or other administrative formalities restricting the flow of business between the two blocs. Strong demand for the currency maintains its value even during periods of instability in the country’s core economy.
Like the EU, the UK is still reeling from the consequences of Brexit and there is a lot of data expected today that will give us some insight into the health of the world’s sixth largest economy.
UK GDP for October
With the UK economy on the brink of recession, every major release could be significant.
There are several ways to look at UK growth rates and near-term expectations. On a monthly basis, GDP is expected to grow by 0.4% in October, compared to negative 0.6% in September. Annual growth for October is expected to be 1.6%, compared to 1.3% previously.
As for the output of the construction sector in the UK, it should have increased by 6.8% on an annual basis in the last October, against 5.7% previously. Expectations for the manufacturing sector are not so positive and a negative 5.0% contraction is forecast for October, compared to the previous negative 5.8%.
In the import and export sector, the trade balance for October is expected to be negative GBP 14.1 billion, compared to negative GBP 15.656 billion in the previous month. The non-EU goods trade deficit for October is expected to be minus 7.9 billion, up from minus 8.551 billion in September, meaning that UK goods imports outstripped exports to the EU and overseas markets.
Overall, the trade balance between the UK and other global goods and services markets is expected to fall from minus £3.1 billion in September to minus £2.3 billion in October.
A trade deficit can occur when the value of a country’s imports exceeds the value of its exports due to inflation of energy imports, or when consumers prefer to buy goods and services from another country, often at lower prices or a favorable exchange rate.
Looking at the forecasts above, the UK economy presents a mixed picture in the short term. Although the economy has repeatedly proven its resilience, it currently faces domestic and international challenges and significant challenges in rebuilding trade agreements from scratch.
However, the United Kingdom is not the only bloc experiencing a trade deficit. The European Union also recorded a negative trade balance for most of the year, largely due to the high cost of fuel imports following the war in Ukraine. The ECB’s December 15 interest rate decision is a major financial event given inflationary pressures in the EU.
The European central bank should raise the key interest rate to 2.5% against the previous 2%, thereby joining other world central banks in tightening monetary policy. What does this year’s final trade and investment month mean for the euro? The currency could benefit from increased support against the US dollar as the gap between US and European monetary policy narrows. If the ECB manages to find a middle ground for monetary policy, euro-denominated assets could start to attract again as interest rates rise in the EU.
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