United Kingdom – Last exit before inflation

The rapid improvement of retail sales in February (+1.5%) has to be interpreted with care. The retail sales momentum has deeply changed in recent months. After a strong recovery since the end of 2013, its profile has dramatically changed last fall. Since the peak of October 2016 the  trend is still robust but downside oriented. Households continue to spend as far as inflation is not too high.
uk-2017-february-retailsales
In the United Kingdom, inflation is back. The core inflation rate was at 2% in February. Its highest level since June 2014. The interesting point is the food price index trajectory. From the end of 2013 to October 2016, it was decreasing. But since October it recovers rapidly. In October the yearly change for food price was -2.4%, in February it is +0.17%. What is impressive is the upturn since last fall and what is important is the acceleration. This is linked with the sterling depreciation.  Continue reading

On Eurozone Vulnerability 

This article written Benedicta Marzinotto, on Project Syndicate, explains what are the fragilities of the Euro Area despite all the structural reforms that has been accomplished. In case of a crisis, high indebted countries would face again high difficulties to maintain their stability. 

Despite recently experiencing an overall economic uptick, the eurozone remains fragile and uninsured against the risk of another crisis. And a major reason is that it is still vulnerable to asymmetric boom-and-bust cycles.
Simply put, while all eurozone members can benefit during good times, some suffer far more than others during busts. This means that whenever the next crisis hits, safety-conscious investors will flee from fiscally weak countries toward fiscally strong ones that have a proven track record of generating economic growth…..

Read the article here 

France-United Kingdom – Not the same currency but the same industrial profile

Post Hoc Ergo Propter Hoc
During the debate on the French Presidential elections, one contender has presented a graph showing a divergence between industrial production in Germany on one side and in France, in Spain and in Italy on the other. For Marine Le Pen the Eurozone was the explanation. There is a divergence but that’s not that simple.
Later in the debate, Le Pen said that the UK performance was exceptional compared to France. One reason was the capacity for the UK to manage its currency.
The temptation is strong to show a graph with industrial production in France and in the United Kingdom. I did it with indices rebased at 100 in 1999 (Eurozone inception)
Profiles are the same. It means that the explanation related to the Euro  is not relevant as UK doesn’t have the Euro as a currency.
The profile of the French economy cannot be read only by its membership of the Euro Area. This issue is more complex than a sentence in a debate. The economy is not as simplistic as some  wants to present it.

France-uk-productionInd-base100 en 99.png

Mario Draghi and the technological change

In a recent speech, March the 13th, Mario Draghi the ECB president explains the link between monetary policy and technological changes perceived as sources of productivity improvements.
This might at first glance seem an unusual topic for a central bank conference, since monetary policy principally operates through the demand side of the economy. But the long-term supply picture evidently also affects our ability to deliver on our mandate.
Much of the debate today about the true level of the real equilibrium interest rate, for example, is a debate about the outlook for productivity growth, which of course depends in large part on innovation and entrepreneurship. Higher productivity growth is also vital to safeguard Europe’s economic model of high wages and social protection, and hence to counter the sense of economic insecurity that is currently prevalent in several advanced economies.

Read the speech here

The French economic cycle and economic policy ahead of the elections

This is my weekly column for http://www.forbes.fr.  Here You can find the original in French

Since the financial crisis in 2008, trend growth has slowed down sharply across western countries.
The chart below tracks 10-year average annual growth in the US and France since 1960. In the 1960s and 1970s, French growth was very robust and considerably outstripped figures in the US, as France enjoyed a phase of catching up on growth as compared to the United States. In the mid-70s, this “catch-up” momentum came to a halt, productivity gains declined and growth slowed sharply to reach a steady trend of around 2%. US growth was slightly higher on average and displayed a more stable pace with a trajectory of around 3% until 2007.
Comp-France-USA-LT-Growth10a
Continue reading

Lucrezia Reichlin on the future of Europe

The future of the European Union may not officially be on the ballot in the upcoming elections in the Netherlands, France, Germany, and Italy, but the results will go a long way towards determining Europe’s fate.
Anti-EU sentiment is more widespread than ever, as demonstrated by the feverish campaigns of right-wing populist insurgents like Geert Wilders in the Netherlands and Marine Le Pen in France

Read Reichlin’s post here http://bit.ly/LREurope-en