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

The US proposal to UK for a trade agreement

The UK government has jumped on the trade agreement proposal made by the US Président-Elect.
But what for? The bilateral trade balance is a surplus for the UK as is shown in the graph below. What is the idea behind the US proposal? A more balanced trade partnership with higher UK imports? IS the UK ready for that and is it its interest? Weird
uk-2016-november-tradebalanceUKUS.png

Discussions at a conference in Washington

I was at a conference in Washington during the first week of January. I discussed 3 themes that represent uncertainty in 2017. Here are the main points I discussed.

The first was about interest rates and the possible contagion effect from the US to the Euro Area. Here are the different points I mentioned

The starting point is related to the low momentum seen in world trade. Trade between countries is no longer a source of impulse as it used to be in the past. This means that every country has to generate its own growth. It’s no longer efficient to expect an improvement elsewhere in the world to provoke a stronger growth dynamics. In other words, every country’s growth depends mainly on the strategy that is developed locally. Continue reading

My contribution “The World Has Changed, …”

You will find below the link to an article, “The World Has Changed, and There Is a Need for Proactive Fiscal Policies” that was published in “International Banker” in the January issue.
It analyses the economic outlook and the risk associated with imbalances in the economic policy mix

“There is an economic and political malaise in many developed countries. For most of them, their growth profile is lower than what it was before the 2007/2008 crisis. In the US, the trend growth is marginally above 2 percent, and this cycle is the weakest since World War II. And even if the unemployment rate is low, close to full employment, the perception is that there are still rooms for improvement, but in an environment without wage pressures. This is a new situation…..”
Read here