Robust Growth in the Euro Area

Strong growth during the second quarter

GDP growth was marginally stronger during the second quarter in the Euro Area. It was at 0.56% (2.26% at annual rate) after 0.51% (2.04% AR) during the first three months of this year. The growth profile has been slightly modified with this publication. Formerly, GDP growth for the first quarter was at 0.58%.
Carry over growth for 2017 at the end of the second quarter is 1.7%, close to 2016 average growth. We see on the graph that during the last three quarters growth is stable and close to 2% (at annual rate).
When we look at corporates’ surveys (see below), we can infer that GDP growth could be close to 0.5% (2% at annual rate) during the last two quarters of 2017. In that case the average growth for 2017 could be at 2.1%. Continue reading

France ready and set for growth

French economic growth is set to step up a pace in 2017 and 2018. It will benefit from a more buoyant world context, which has been visible in the surge in world trade over recent months. It will also be driven by activity in the euro area, which is enjoying a situation that we have not seen for some time. Business trends are picking up across all countries in the zone, even Italy, and business leaders are now much more optimistic than they were a few months ago.

The situation in the Eurozone is also characterized by fiscal policy that has become neutral, and monetary policy that is set to remain accommodative for a while to come. This means that for such times as inflation stays well below the ECB’s 2% target, the central bank will not change its monetary approach. To add to this, oil prices are not expected to rise sharply, so long-term rates will still stay very low. This overall context promotes risk-taking and encourages investment.
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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
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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.
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The ISM global index at its lowest since January 2010:The Fed can rest at its next meeting

The non-manufacturing index from the ISM survey was down more than 4 points at 51.35 in August. The sector is growing but at a slower pace. It’s its weakest level since February 2010.
With the retreat of the manufacturing sector at 49.4, the current outlook for the US economy is more fragile.
usa-2016-august-ismmanuf&nonmanuf.png
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