Sustained growth in the Eurozone since the beginning of the year

Growth has been robust since the beginning of 2017. In the second quarter, the economic activity was up by 2.5% after 2% during the first quarter and 2.4% in the last three months of 2016 (annual rates). Compared to the second quarter of 2016 the GDP level is 2.15% higher and the carry over growth for 2017 at the end of the second quarter is 1.7% (in other words, if growth is 0% in the third and the fourth quarters than the average growth for 2017 will be the same than in 2016). The graph shows this with a strong acceleration during the last three quarters.
Corporates surveys suggest that the growth momentum is strong so the Euro Area GDP growth will be above 2% on average for 2017 (2.1% for Natixis AM) Continue reading

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

Political watershed at the heart of Eurozone growth

The euro area is looking like a haven of stability these days. The election of Emmanuel Macron and his strong relationship with Angela Merkel have driven expectations that the economy will get back to more robust growth and that the political arena will take the steps required to embark on reforms that will maintain stability in the long term.

This watershed is remarkable as barely six months ago, the euro area looked like it was on its last legs. The expected surge in populism during the various different elections was set to hamper European integration and set off a downward spiral of lessening cooperative and greater antagonism.

Yet as July gets off to a start, we can observe that this is far from the reality and that European electors did not follow the path chosen by the US and the UK. 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.
Continue reading

British Risk

The United Kingdom GDP growth will slowdown dramatically during the first quarter of 2017. Retail sales were down -6.1% during the first three months of the year, in contrast with what was seen recently. This reflects the acceleration of the inflation rate and specifically the higher food prices that have reduced HH purchasing power.
As the consumption profile is consistent with retail sales we can expect a drop in HH consumption that will pull down the GDP figure.
This is the first real impact of the Brexit through lower purchasing power. But that’s just a first step
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The new French president and growth at 1%

This is my weekly column for Forbes.fr. The French version is available here

The new French president will have to deal with an economy that is growing at a spontaneous rate of close to 1%, which is the average figure observed since the start of 2013. The new leader’s challenge will be to break with this trend on a sustainable basis, in order to create enough jobs to cut back unemployment and generate additional revenues to finance the social welfare system more effectively and more comprehensively.

Each candidate is of course fairly optimistic on the projected growth profile, expecting the average figure to be slightly under 2% in 2021/2022: in the space of five years, the new president therefore thinks that he/she could almost double the French economy’s growth rate. This is highly ambitious.
Judging by the growth profiles expected by the various candidates, the financial crisis, which has been going on for almost 10 years, will only have had a temporary impact as the economy could converge towards its pre-crisis trend by the end of the president’s forthcoming five-year term. This analysis is mistaken: the French economy has been permanently marked by this crisis. Like most western economies, it has suffered severe and persistent shocks that hampered its growth momentum. The US, the UK and other countries are witnessing a similar situation. Sluggish growth is not an exclusively French phenomenon and other countries are also taking a long time to find a way to return to pre-crisis growth levels.

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In view of French economic figures, candidates’ projections display considerable determination on their part, as the economy is not spontaneously converging towards 2%. Continue reading