4 Graphs on US GDP growth

US GDP growth for the third quarter was revised on the upside. Economic activity was up by 5% (annual rate). Compared to Q3 2013, GDP is up by 2.7% and carry over growth for 2014 at the end of the third quarter is 2.25%.
GDP growth number is the highest since the third quarter of 2003.
usa-en-2014-q3-gdp-vtrimThe recent acceleration is robust as it can be seen on the graph below which represents GDP level at constant prices. We see, as it could be seen also on the previous graph, that the first quarter weakness was temporary and clearly not a change in trend Continue reading

My Daily Column – Confusion in Emerging Countries

There is confusion currently on markets and mainly on emerging markets. This implies sometime strong and brutal adjustments.
Last night, such an adjustment has been seen in Russia when the central bank of Russia has increased its main interest rate from 10.5% to 17%. It was a response to the deep and dramatic drop of the ruble.
On a more general ground, we’ve seen strong movements on emerging debts and emerging exchange rates. Equity markets volatility was not restricted to emerging countries. On all these issues, the oil price issue is major. On the equity market in developed countries, short-term uncertainty hides the positive story associated with lower oil price: lower investment in the oil sector today but more consumption in the future and more investment in other sectors. Continue reading

ECB Monetary Policy after the TLTRO

The second TLTRO of the ECB, on December the 11th, has brought EUR 129.8bn of liquidity on the market. This will not be sufficient and the European monetary authorities will have to put in place new instruments, probably at the next ECB meeting on January the 22nd.

Two remarks on the ECB monetary policy
1 – The ECB has two instruments: interest rates and liquidity. The first is close to 0 at 0.05% for the refi rate. The ECB is constrained by the Zero Lower Bound. To reach a more accommodative monetary policy the ECB will have to increase liquidity to the financial and banking sector. Last November Mario Draghi took a formal commitment to increase the ECB balance sheet by EUR 1 000bn by the end of June 2016. It will then converge to the level seen in March 2012. The main reason for this liquidity is the will to rapidly curb inflation expectations
2 – In the ECB monetary policy framework, liquidity injections are temporary. It’s true for short-term operations but it is also what is seen for longer operations. Currently 2 operations that have been done, one at the end of 2011 and the other in February 2012 are reimbursed now. Their duration was 3 years. It’s an important difference with what is done by the Fed where long-term operations are purchases.

The operation of December the 11th has increased liquidity by EUR 129.8bn. With the previous operation of September the 18th which provided EUR 82.6bn the total amount is EUR 212.4bn. This is way below the EUR 400bn targeted by the European monetary authorities and announced at Draghi’s press conference on June the 5th (see here paragraph 6). Continue reading

My Daily Column – Income Distribution and Growth

Income distribution is currently a major topic as the crisis has persistent effects. We remember during fall of 2011 the “Occupy Wall Street” movement. More recently Thomas Piketty‘s book gave a framework to analyze and to understand deformations in income distribution. Piketty suggests that the economic dynamics doesn’t spontaneously converge to a fair situation and that corrective measures may be needed.

Nevertheless we didn’t have an analysis linking income distribution and growth.
In a recent document, OECD gave some answers to this question that divides economists: Is an unequal income distribution a key-element to create incentives for growth? Or: Is a narrow income distribution the clue for a strong growth? We understand that answers are necessary to understand how economies move in the long-term. Continue reading

What can we learn from the week of the 1st of December?

The first point to mention is the long lasting divergence on economic outlook between the USA and the Euro Area.
In the USA the ISM global index is a weighted average (by employment) of synthetic indices from the manufacturing and non-manufacturing sector. The index is in November at a very high level (59.2) which feed expectations of robust growth prospects. This is not really the case in the Euro Area. The index, which is designed with the same methodology, is now marginally below the threshold of 50. The probability of a contraction of the economic activity is non null. Continue reading