France – INSEE survey shows gloomy prospects

The French business climate index published by INSEE was stable in November. Its level of 95 is 5 points below its historical average which is by construction at 100. We see on the chart that the index is below 100 since September 2011.
Details of the survey do not show rapid improvement in the coming months. The Industry sector which is a good proxy for GDP short-term dynamics is stable since last August and details on this sector do not suggest a rapid improvement. Orders remain low, lower than their historical average. Companies’ expectations for their own business were lower in November than in October and are now lower than their historical average. Continue reading

PMI/Markit Surveys in November – Weaker for the Euro Area, Stronger in Germany but dramatic for France

The flash estimate of the PMI/Markit survey for the Euro Area implies a momentum that is weaker than it was during last summer. The synthetic index is still growing but at a slower pace (see chart 1 below). The same pattern can also be seen in the production index. In the New Orders index the pace is positive but as slow as it was in October. The employment index has dropped in November; this is worrisome as it was showing almost stable employment in September. In other words, the current recovery could be weaker than expected and that could be also a reason, beside inflation, for the ECB to adopt a more accommodative monetary policy.
The weakness in November comes from the services sector. The manufacturing sector momentum is still robust and continues to expand.
With the flash estimate we just have details for Germany and for France. We see on the chart below that their profiles diverge dramatically. Continue reading

Euro Area – Towards a New Equilibrium

This post in pdf format is here:
Euro Area – Towards a New Equilibrium

The perceived risk of deflation and the ongoing adjustments in the Euro Area are forcing the establishment of a new status quo. The mechanisms in place prior to the crisis, which had afforded Germany a strong position, are coming under scrutiny. With the emergence of new constraints and new opportunities, not to mention changing power balances, the Euro Area has to find a new model for working together. It is this “new geography” that has to be redefined within the Euro Area. Convergence towards this new status quo is a necessary precondition for a future era of prosperity. Continue reading

France – The question asked by Standard and Poor’s

France has been downgraded by Standard and Poor’s last Friday (November the 8th). I have written on this issue (see here) but due to controversies I have to complete my explanation.
The best way to highlight the issues France has to face is to look at a simple graph. The chart below represents GDP per capita at 3 different periods after a recession. The first is the first oil shock in the mid-70’s, the second is the aftermath of the European Monetary System crisis in the early 90’s and the third is the current episode.
GDP per capita is at 100 at peak of the business cycle.

Looking at the graph we see that the first two exits from recession are comparable. Continue reading

Japan, Europe and Central Banks independency – IMF Conference

The first part is a possible parallel between Japan after their crisis and Europe.
Takeo Hoshi suggests that Italy, Spain and France could follow the Japanese trajectory. It will not be the case for Germany,  United Kingdom and the USA

The second part of the video is Adam Posen on Central banks independency

French economy downgraded to AA

France’s credit rating has been downgraded by Standard and Poor’s.  The country is now rated AA versus AA+, previously. The agency also moved its outlook to stable, suggesting it sees less than a 1/3 chance of a further rating cut or an upgrade in the next two years.

What grounds did the agency give for its change of view on France?
Several points stand out from the Standard and Poor’s report. Continue reading