Week Ahead (19 August)

Tuesday 20 August, No-confidence vote on Conte government scheduled

On 20 August, the Senate will hold a vote of no confidence in Giuseppe Conte and the government over which he presides. Regardless of the outcome of this vote, Conte is likely to offer his resignation to President Mattarella. This will open the way to four scenarios: fresh elections (to be held between October and November); an ‘institutional government’ who will share a few short-term political objectives and bring the country to vote in mid-2020; a ‘technical government’ led by a non-political figure who will pass key laws (related to the budget and the electoral law) before elections in early 2020; or a new PD-M5s coalition government with the aim of lasting until 2022. Given developments over the weekend, which saw M5S reject overtures from Salvini to patch things up, scenarios three or four appear to be the most likely outcomes. Several pitfalls await an M5S/PD coalition, but the political willingness appears to exist to make this a reality.

Tuesday 20 August, Oireachtas committee on communications to vote on Ireland’s broadband plan

On 17 July the Irish government rejected a last-minute proposal from Eir to complete the National Broadband Plan (NBP) at a cost of €1 billion – approximately one-third of the cost of the winning bid. On Tuesday, a vote will be held on a proposal from the main opposition party, Fianna Fail, that the government commission an external, independent review around the project’s viability. While the government could ignore the outcome of this vote, it will add further pressure at a time when the government is coming under fire for economic mismanagement of large infrastructure projects.

Wednesday 21 August, Forecasts for the UK economy released

Recent economic data indicates the likely erosion of the resilience of the UK economy in the face of Brexit uncertainty. Data released by the Office of National Statistics today shows UK GDP contracted in Q2 2019 for the first time since 2012. Showing particular weakness was the UK’s car manufacturing sector, where output contracted by 9.5% in Q2 – the biggest quarterly contraction since the financial crisis in 2009.

Consumer price inflation rose to a three-month high of 2.1% in July from 2.0% in June – against expectations of a fall to 1.9%. High inflation will make it trickier for the Bank of England monetary policy committee, which meets on 19 September, to steer a dovish line in the face of no deal Brexit uncertainty.

On Wednesday the Treasury will publish the next edition of its comparison of 23 independent forecasts for 2019 and 2020. The July edition saw forecasters predict an average growth rate of 1.3% for 2019 and 1.4% for 2020. Any weakness in the numbers will likely strengthen the Johnson administration’s determination to bring forward a fiscal stimulus package to ward off any negative impact associated with no deal uncertainty and to put the conservative party on an election footing.

Thursday 22 August, ECB Minutes to give insight into Governing Council assessment of continued inability to reach 2% inflation target

At the July Governing Council (GC) meeting, Mario Draghi gave the ECB’s strongest commitment yet to reaching its 2% inflation target, while adding that the ECB did not have to stop at 2% and could tolerate higher inflation for a period. This has been described in some quarters as the “whatever it takes” moment for inflation. The minutes will help determine whether Draghi’s fellow GC members share his determination.

Given the continued weakness in inflation, and the risks posed to the Eurozone economy by the volatile global situation, we think it highly likely (80% probability) that additional stimulus measures will be adopted in September, which will involve further deposit rate cuts plus a potential relaunch of quantitative easing programme (60% probability) in September.

Friday 23 August, Moody’s Greek debt review

On Friday, Moody’s will review Greece’s sovereign rating. Moody's credit rating for Greece was last set at B1 with a stable outlook in March. In early August, Fitch upgraded Greece to BB- (Ba3). Moody’s may be wary of upgrading Greece to Ba2 before the Thessaloniki International Fair – which opens on 7 September and at which New Democracy is expected to unveil a more comprehensive investment plan.