The latest in European economics
While the UK economy is drastically slowing, it hasn’t yet fallen into recession territory. After a shrinking GDP in the second quarter of 2019, Britain’s economy grew by 0.3% in the third quarter, staving off talk of a recession. The service sector performed well, growing by 0.4% on the quarter, while construction was also a bright spot, growing 0.6%. The country’s Office for National Statistics (ONS) highlighted the growth, stating, “Production was flat in the three months to September 2019; this sector has not seen positive rolling three-month growth since April 2019. Still, optimism abounds in the UK, where Moody’s has threatened to downgrade the nation’s credit rating below its current Aa2 rating if its economy continues to falter.
Estonia has successfully grown its population in the past several years. One of the ways it has done so is by providing excellent childcare benefits as well as paying families with three or more children €300 per month. The birth rate in Estonia has risen as a result, and the country experienced 600 more births in 2018 than the year prior. Immigration has also risen in Estonia, where 6,000 working age adults moved to the country in the 2017-2018 year. Estonia hopes that this influx of immigrants and an increase in birth rates will aid in its growing economy for decades to come.
According to a recent survey conducted by the Confederation of Finnish Industries (EK), companies in Finland are not excited about the country’s economic outlook. In the survey, 40% of respondents felt that a lack of demand has caused a decline across the country’s major sectors. The EK’s chief economic policy advisor, Sami Pakarinen, noted that it is not inconceivable that Finland falls to a zero-growth economy. “It is worrying that the economic outlook has declined rather rapidly during autumn…Next year is projected to have the lowest growth of half a percent. If you compare the barometer to other growth forecasts, we cannot rule out [the possibility] that growth will fall to zero,” Pakarinen said.
While the Spanish economy is propping up the Eurozone, a new political coalition in the country has many concerned about its economic future. Spain was the Eurozone’s biggest growing economy in the third quarter, with GDP growth at 0.4%. Yet, the recent formation of a coalition government which includes the country’s far left Unidas Podemos party brings concerns of excessive government spending which could hamper growth. The progressive party is looking to increase Spain’s minimum wage drastically and maintain rent control in certain urban areas. Detractors from this plan claim these policies could stagnate the Spanish economy in the coming years.
Bondora Portfolio Performance
Return rates decreased compared to September, but are still above their target numbers.
As always, performance charts by country are broken down by the number of loan issuances over the given period, with Orange representing <50 loans, Blue 51-200, and White >200.
Yearly return rates for the past 7-years decreased in October. Rates for 2018 and 2019 still exceed their targets, with 2019 rates coming in at 28.9%, a full 14% higher than their target rate. The return rate in Estonia for the current year was slightly higher, up to 20.2%.
Q2 rates for the current year fell only by 0.2% to 30.5%, while Q1 rates were lower by 0.9% to 27.7%. Rates for the most recent six quarters remain above their target expectations.
AA rated loan rates fell into negative territory (-0.78%), albeit on very low originations for the second quarter. Meanwhile, B rated loan return rates actually jumped by 1.38% to 11.28%. E, F, and HR rated loans saw their return rates drop, but all by less than 1% compared to September.
Estonia had the most rating categories with higher interest rates than last month. A rated loans (10.04%), C rated loans (16.86%), D rated loans (22.49%), and E rated loans (28.72%) all grew on the month.
For the second quarter, HR rated loan returns grew by 1.67% to 59.60%. For Q1 2019, returns on E rated loans doubled to 4.06%. For the past six-quarters, F and HR loan return rates have been above their target numbers.
*As with any investment, your capital is at risk and the investments are not guaranteed. The yield is up to 6.75%. Before deciding to invest, please review our risk statement or consult with a financial advisor if necessary.