Stronger Growth Momentum in the Euro Area

The Eurozone synthetic index of the Markit survey for February 2017 is skyrocketing. Its level is the highest since April 2011. For France and Germany profiles are similar. The French index is back to its May 2011 level and for Germany the comparison is for June 2011.
Therefore the GDP growth for the first quarter may be stronger than expected and for 2017 the figure should be stronger than what is currently forecasted (see here).

Economic policy stances are more stable and more readable since 2014/2015. Fiscal policies are more neutral and the ECB strategy is accommodative and perceived as such for an extended period. As a consequence, companies and households’ behaviors depend more on their own constraints than on hazardous measures taken by governments as it was the case until 2012/2013. Moreover interest rates are very low, financial conditions very accommodative and the oil price is stable at a low level.
There is a need now to continue and the ECB will maintain its current strategy. This will help to amplify the current growth improvement.
The Euro Area index profile suggests that all the other countries (outside France and Germany) are also performing well (We don’t have early estimates for other EA countries). This means that the current impulse will lead to to stronger and more dense trade between EA countries creating the conditions for a more virtuous business cycle. It will be more autonomous and will create more jobs therefore reinforcing the internal demand momentum.
The main risk is on the political side.
Continue reading

Exit from the Euro Area: Uncertainties and Risks

I write a weekly column on the Forbes French website. I will now translate them into English. You can find the original column here in French.
You will find below my yesterday’s column on risks associated with an exit from the Euro Area

The presidential and general election dates are fast approaching in France and the issues at stake are becoming clearer. One question that keeps coming back to the fore is France’s exit from the Eurozone. Commentators focus most particularly on what would happen in the immediate aftermath, once the country formally exits the currency union, and they are quite right to do so, as a number of very relevant questions need to be raised. Continue reading

The Euro Area growth in perspective

The GDP growth figure was 1.7% in 2016 for the Euro Area. It is interesting to compare this performance to other large countries in the world. Four graphs can give landmarks on the relative robustness of the Euro Area compared to its main partners and competitors.
In an absolute measure, it is far from having the best performance but since the crisis growth trends have changed. The gap between the current GDP level and the pre-crisis trend is larger in the US and in the United Kingdom than in the Euro Area. This latter felt but from a lower point than the anglo-saxons countries. The detail of the Euro Area is still problematic as momentums of Italy, Portugal and Greece are still far from what is observed elsewhere. Continue reading

The German Growth in 3 graphs

The GDP growth was 1.7% (at annual rate) during the fourth quarter of 2016.It was a mere 0.4% in the third quarter. For 2016 GDP was up 1.8% after 1.5% in 2015.
The carry over growth for 2017 at the end of 2016 is 0.5%. It was the same number at the end of 2015 for 2016.
Domestic demand is currently the main support for growth with a high contribution from government expenditures. Since the first quarter of 2015, GDP growth is +1.5% on average and the government expenditures’ contribution is +0.7%; Almost half of it, that’s a large number (data until Q3 2016, the detail for Q4 is not available yet).
Construction is also an important contributor.
Government expenditures and construction are the German response to the refugees’ crisis, leading to a more autonomous .growth. Net exports have a negative contribution (imports were up due to a robust domestic demand).
Growth in Germany follows now a more autonomous and centered growth framework. It has a positive and persistent impact of the Euro Area growth.

The first graph shows the stability of the German business cycle. There is no break in the crisis contrary to what was seen in every other developed country. This reflects the absence of rupture in the private domestic demand. (The break in 2008 is mainly associated with external trade in Germany)
germany-2016-q4-gdptrend

The second graph shows the cumulated contributions of different sources of demand to GDP growth. On the right part of the graph we see that the main sources of growth are the private demand and government expenditures. Since 2013, the net exports contribution is almost neutral (no upward trend).
This support from domestic demand is a source of improvement for the Eurozone
germany-2016-q4-gdp-contrib-lt
The third graph is the government expenditures’ quarterly contribution to GDP growth since 2015. On average GDP growth was 1.5% and the contribution was 0.7%.
germany-2016-q4-gdp-gvycontrib

Higher inflation rate in the Euro Area – It’s oil price

The Euro Area inflation rate jumped at 1.8% in January after 1.1% in December 2016.
The graph below shows the cumulated contributions to the inflation rate. It can be read in the following manner: the red line is the goods price contribution to the inflation rate; the blue line is the sum of the red line plus the services price contribution to the inflation rate; the green line is the sum of the blue line and of the food price contribution to the inflation rate. Alle these prices represent more than 90% of the Consumer Price Index. The green line is almost stable; its range is 0.6% – 0.85% since mid-2014. There is no surge in inflation through all these prices.
The last line, the purple one, is the sum of the green line and of the energy price contribution to the inflation rate. Continue reading

Euro Area GDP growth: Positive signals for 2017

The GDP growth momentum was stronger at the end of 2016. The GDP growth rate was at 2% (annual rate) for the last three months after 1.75% for the third quarter.
For 2016, the GDP growth was on average at 1.7% after 1.9% in 2015. The carry over growth at the end of 2016 for 2017 is positive at 0.7%. It is the highest figure since 2010. It means that the new year is starting well. The 0.7% means that with GDP growth at 0% for every quarter of 2017, the average growth rate for 2017 would be 0.7%. We see that in 2011 (for 2012) and 2012 (for 2013) the carry over was negative. It was almost impossible to catch up and to converge to a positive growth. This was the impact of austerity policies in the Euro Area. Continue reading