Weekly Economic Insights - 16 July 2018

Macro Highlights - 7/17/2018

Highlights of the week

Economist insights: Despite a low unemployment rate, Swiss domestic inflation remains stable; slight slowdown in Chinese GDP growth

  • In Switzerland, despite the low unemployment rate, at 2.6% in June, domestic inflation remained low at 0.4% in June, which gives time to the SNB before normalising its monetary policy

    In China, year-on-year GDP growth was down at 6.7% in the second quarter from 6.8%, notably due to a lower contribution of net exports

    If trade tensions were to result in a more marked slowdown in activity in China, the Chinese government would have to choose between financial and economic stability

Focus United States: Is the US corporate debt at risk?

  • Since the financial crisis, US companies have turned to financial markets to increase their debt. However, at the same time the strong increase in their cash flow has enabled net debt to remain moderate

    When taking account of liquid assets and earnings, credit risks are concentrated in certain sectors, such as utilities and energy, for which debt is more sensitive to a rise in interest rates

Moreover, the debt of US companies as a percentage of GDP remains well below that of the eurozone and China, especially as the recent tax reform in the US is set to encourage companies to repatriate more cash flows

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