ZEW Assessment of German Economy Shows a Four-Year Decline; Brexit Uncertainty Clouds Economic Outlook in Europe; UBS Shares Fall After Earnings Miss
QUEST: Here in Europe, stocks were hit by the same growth concerns and the rest of the world. Red arrow across all the major bourses. London's FTSE was the worst performer of the day. In Zurich, the Swiss market, the Swiss -- and the UBS fell 3 percent after weak earnings. The company's Chairman Axel Weber will be with us to talk about that, that more importantly, the markets and economies in a moment. First, though, confidence in the German economy is dwindling fast. A new ZEW survey shows analysts views of the state of the economy are at a four-year low. The Chinese slowdown, U.S. trade disputes, uncertainty around Brexit all playing a part into that. Mario Centeno is the president of the Eurogroup and Portugal's Finance Minister and is with me. Good to see you, minister.</s>MARIO CENTENO, PRESIDENT, EUROGROUP & FINANCE MINISTER, PORTUGAL: Good to see you this year again.</s>QUEST: The amount of problems out there, trying to slow down, worries over trade imbalances or trade world wars and still you've still got some problems, most notably with Italy in the Eurozone.</s>CENTENO: Yes, we have been accumulating some risks and uncertainties. Most of them are related with the political decisions that are still up there and they can be fixed. So I think we need to get a new year of much focus political decisions --</s>QUEST: Or what, though? What do you want to focus on?</s>CENTENO: On Brexit, on Italy, on the Eurozone reform that we have to continue this year. So we need to instill confidence in the economy through the right political decisions.</s>QUEST: How worried are you of a no-deal Brexit?</s>CENTENO: It's a very problematic thing if it happens. So we must do all we can to avoid that outcome.</s>QUEST: Right, but are countries -- and this is where you wear two hats, Portugal and -- you know, if the Brits come to you and say, no, we need to open up that agreement and take out the Irish backstop, will Portugal agree to that?</s>CENTENO: Well, that negotiation is taken at EU level. It's very well structured from the EU side. I think the U.K. also knows precisely what are the rules of these negotiations, and there is a lot to gain to complete it.</s>QUEST: Right. The -- an EU budget, a Eurozone budget --</s>CENTENO: Yes --</s>QUEST: You want one?</s>CENTENO: Yes, I do want one for the Euro. It's a huge --</s>QUEST: Who would control it?</s>CENTENO: Currency area -- the governments, of course, the countries. As it happens with the EU, it's very important as a pillar to promote conversion and some compactness--</s>QUEST: Right --</s>CENTENO: In my --</s>QUEST: Choose your color.</s>CENTENO: Currency area.</s>QUEST: Choose your color.</s>CENTENO: OK, I'll take blue.</s>QUEST: What's your biggest worry, your biggest worry at the moment?</s>CENTENO:  OK -- QUEST: Join us on the board.</s>CENTENO: I will.</s>QUEST: Somebody has finally gone for a Brexit.</s>CENTENO: Yes.</s>QUEST: Somebody has finally gone for a Brexit.</s>CENTENO: This is very important.</s>QUEST: Not surprised actually, you're in the Eurozone, head of the Eurozone, thank you, good to see you --</s>CENTENO: Thank you --</s>QUEST: Thank you sir.</s>CENTENO: Thank you sir.</s>QUEST: Take a look around the markets and see the final hour of trade and the Dow is heading for a fall of more than 1 percent. Tuesday is the first chance Wall Street has had to respond to those lowered estimates for global growth. Speaking at a panel here in Davos, the legendary investor Ray Dalio said the slowdown will affect the entire world.</s>RAY DALIO, FOUNDER, BRIDGEWATER ASSOCIATES: U.S., Europe, China, all of those will be experiencing a greater level of slowing, probably a greater level of disappointment. And I think that there's a reasonable chance, that by the end of that, that the monetary policy and fiscal policy will have to become easier relative to what is now discounted in the markets.</s>QUEST: The Chairman of UBS Axel Weber was also on the panel, joins me now. Good to see you.</s>AXEL WEBER, CHAIRMAN, UBS: Good to see you, Richard --</s>QUEST: Sir, as always. Let's get your own results out of the way first. What were the factors that influenced these set of results?</s>WEBER: Well, we're talking about the fourth quarter, but the fourth quarter rounded off a good year. So there were -- we showed the same weaknesses some of our peers have shown. Trading was born, the investment bank had a difficult quarter, December was quite difficult and we've seen outflows in vault management. You know, and so -- but overall, if you look at the year, it was a pretty strong year, good year for us, we've improved our earnings.</s>QUEST: Can we write off that fourth quarter as being one on its own. And you're not -- I mean, you know, and in late January, but we're not seeing evidence of similar yet?</s>WEBER: No, I think, you know, I am quite concerned that the mood here in Davos is way too pessimistic this year. Last year, I was one of the few that thinks, you know, things won't grow into the sky. This year, I think the market has taken a big swing on the other side. I think we're really approaching a slowing economy, but we're approaching the slow from above. I mean, we're above potential. We see some soft spot in the economy, but not more than that --</s>QUEST: Right --</s>WEBER: It would probably be worked out in the first half year.</s>QUEST: The worry is always that slowdowns become more than that. And I'm not -- well, let me use the "R" word --</s>WEBER: Yes --</s>QUEST: Recession. I mean, Germany is already teetering, Italy is not doing very well, France is on the verge.</s>WEBER: Well, I was talking some time ago already about Germany facing a technical recession, which is two negative quarters in a row. But I think that is really a technical correction. We know good reasons why this third quarter was weak and it had some knockoff effect on the fourth quarter. If you look at the global economy, I think we're seeing some uncertainties. People are worried about monetary policy tightening too fast. That's a risk that I think is not really going to be present because central banks look at the data, they will take their time. The Fed in my view is in a wait-and-see mode rather than continuing tightening. So some of the terrorists I saw in the fourth quarter in my view are starting to disappear.</s>QUEST: Do you think the Fed moved too far, too fast.</s>WEBER: No, I think the Fed was in an environment where growth was very strong and rates were close to zero. They had to normalize rates. The question is as the economy saw some sign of weakness, especially the global economy, they won't continue that same policy. What was adequate two years ago and last year is not adequate at this time of the year.</s>QUEST: Right, and the ECB of course, your friend in the ECB. Their QE is over. The rundown of the balance sheets -- I mean, it should be a relatively uneventful affair.</s>WEBER: Well, the ECB in my view would normalize monetary policy in the next cycle. They will not get interest rates out of negative territory in a weak, also environment. And I think the ECB at best will start raising rates towards the end of this year.</s>QUEST: This year?</s>WEBER: At the end of this year -- at the earliest for minus-point 4. But I don't think they will get very far with that. So if you look at the global economy, there is a soft spot in the economy, and central banks will take a very measured approach.</s>QUEST: Do central banks have sufficient resources if things turn worse? Let's say this trade war gets really nasty and Brexit goes over the cliff. You know, the perfect storm --</s>WEBER: Yes --</s>QUEST: And is there -- is there -- what tools are left?</s>WEBER: Well, what I'm worried about is you already talked about monetary policy as the only tool. The problem is we have no fiscal space left. Fiscal policy is not consolidated, and we're going to get into a discussion again, but the central banks are the only game in town.</s>QUEST: Which they will be.</s>WEBER: Which they will be if they need to be. But I think, you know, you can rely on central banks to do their job, but I would have rather seen fiscal policy have some room to maneuver because that's a much more --</s>QUEST: Right --</s>WEBER: Impactful policy.</s>QUEST: Choose your color.</s>WEBER: I'll take the red and I'll highlight that pessimism is our biggest problem at the moment.</s>QUEST: Pessimism is too much, that's -- good to see you, sir --</s>WEBER: Thank you very much, Richard --</s>QUEST: As always, have a wonderful Davos --</s>WEBER: Thank you very much --</s>QUEST: Thank you for joining us. We will take a profitable moment after the break.