The demand for credit is stronger in the Euro Area

The ECB survey shows, at the end of 2015, a new improvement on credit conditions for companies.
The first point to mention is that credit standards are still accommodative at the turn of the year. Banks are not tightening their behaviour on the credit market. Credit standards are almost at their lowest. That’s what the graph below shows. It’s not the situation encountered in 2009 and 2012. Continue reading

The importance of oil – My weekly Column

First graphA lower oil price will drive inflation rates down
With Iran back on the oil market, the price dropped below 30 dollars for a barrel. This could have an important impact on the inflation rate and therefore on monetary policy strategies in Europe and in the US.
The graph shows, for the Euro Area, the energy contribution to the inflation rate. It also shows the one year change of oil price (Brent) in euro. The two curves have consistent profiles.
With an oil price at 50 and the EURUSD exchange rate at 1.07 (red line), the oil price change is consistent with an energy contribution that could be close to 0 on average in 2016. It was a good hypothesis to put the price at 50. In that case, the headline inflation rate was able to converge to the core inflation rate. It was a comfortable situation for central bankers.
If on average, the oil price is 35 USD and 1.07 (green line), the contribution could be close to -0.6%. In that case, the inflation rate would be circa 0%. With 30 USD and 1.07 it would be probably negative.
These simple calculus show that the oil price trajectory will be important in 2016 (close to 30 or below?) and that there is no guarantee that inflation rates could converge to 2% in a finite time. Continue reading

Daily Column – Economic Momentum in November

The global economic outlook was still much contrasted in the manufacturing sector at the end of November. That’s the result of PMI/Markit and ISM surveys.

The first point to mention is the marginal drop of the PMI world index from 52.2 in October to 51.8. (An index above 50 means an improvement of the activity in the manufacturing sector. Going from 52.2 to 51.8 means that activity is still growing in the manufacturing sector but at a slower pace)

The downward inflection of the global index is linked to a US PMI index that is weaker than last summer according to the Markit survey. This is in contrast with the ISM survey that shows that since last summer the manufacturing sector is booming. The divergence can be seen on the chart. Continue reading

My Daily Column: Euro Area – Elements for a recovery

Every morning I record a podcast in French (see here) on a specific topic. The text below is the translation of this morning podcast.

The combination of a more competitive euro, an oil price at $ 70 and a proactive monetary policy will be strong support for an economic improvement in the Euro zone.
For now, this situation is not good. Surveys like PMI/Markit show a fragile dynamics, while in the same time, consumer confidence is bending on the downside.

The fall of the euro will have two effects
First it will restore European companies’ competitiveness. Given their recent performances, France and Italy will benefit more because of their current poor exports’ performances. Continue reading

My Daily Column – Lower oil price: A really good news

Every morning I record a podcast in French (see here) on a specific topic. The text below is the translation of this morning podcast.

The drop in oil price will have a salutary effect on the economy of the Euro Area.
The lack of commitment between oil producers at the OPEC meeting in Vienna on Thursday the 27th implies a continuous slide in the oil price.

This situation reflects a very peculiar situation on the oil market which is in excess supply. Demand’s dynamics is limited because of the gloomy global growth momentum. At the same time, production is at a high level. Every producer tries to improve its revenues by increasing its own production or by maintaining it at a high level.
Continue reading

My Daily Column: Investment and the Juncker Plan: some doubts

Every morning I record a podcast in French (see here) on a specific topic. The text below is the translation of this morning podcast.

Economic growth in the Europe has a low profile since the first quarter of 2011. It’s necessary to find a way to create a breakage in order to converge to a higher trajectory.
Investment is probably the good tool for that. It can accelerate rapidly as it has been seen in the past and so can rapidly change the profile of the economy. Moreover it can incorporate innovations and technical progress in order to improve potential growth.
Continue reading