The German Growth in 3 graphs

The GDP growth was 1.7% (at annual rate) during the fourth quarter of 2016.It was a mere 0.4% in the third quarter. For 2016 GDP was up 1.8% after 1.5% in 2015.
The carry over growth for 2017 at the end of 2016 is 0.5%. It was the same number at the end of 2015 for 2016.
Domestic demand is currently the main support for growth with a high contribution from government expenditures. Since the first quarter of 2015, GDP growth is +1.5% on average and the government expenditures’ contribution is +0.7%; Almost half of it, that’s a large number (data until Q3 2016, the detail for Q4 is not available yet).
Construction is also an important contributor.
Government expenditures and construction are the German response to the refugees’ crisis, leading to a more autonomous .growth. Net exports have a negative contribution (imports were up due to a robust domestic demand).
Growth in Germany follows now a more autonomous and centered growth framework. It has a positive and persistent impact of the Euro Area growth.

The first graph shows the stability of the German business cycle. There is no break in the crisis contrary to what was seen in every other developed country. This reflects the absence of rupture in the private domestic demand. (The break in 2008 is mainly associated with external trade in Germany)

The second graph shows the cumulated contributions of different sources of demand to GDP growth. On the right part of the graph we see that the main sources of growth are the private demand and government expenditures. Since 2013, the net exports contribution is almost neutral (no upward trend).
This support from domestic demand is a source of improvement for the Eurozone
The third graph is the government expenditures’ quarterly contribution to GDP growth since 2015. On average GDP growth was 1.5% and the contribution was 0.7%.

Germany and France on a slower momentum

According to companies’ survey in Germany and in France the economic activity was marginally down in August. German’s companies were a little more pessimistic for the 6 month period to come.
Even if levels are different we perceive in the following graph that there is a kind of stability in economic activity during the last twelve months. This synchronization of the business cycle suggest that France and Germany cannot really expect a stronger growth momentum in the short run. In other words, it seems that German and French economic activity are not able to accelerate from their current level. It’s not worrisome for Germany as its unemployment rate is low but it is problematic for France as its unemployment rate is just below 10%. As there is no impulse from outside as world trade trend is flat, it means that the impulse must come from inside. The ECB has done the job so we must expect a more proactive fiscal policy in order to jump on a higher trajectory. Continue reading

A lower momentum for the Euro Area during the second quarter

GDP growth for the Euro Area was confirmed at 0.3% (flat) for the second quarter of this year (2.2% at annual rate).
The table below shows growth figures for different countries of the Euro Area.
In the largest Eurozone countries there is a slowdown during the second quarter. This is the case for Germany (from 2.9% to 1.7%), for France (+2.7% to -0.2%) for Spain (from 3.1% to 2.8%) and for Italy (from 1.1% to 0%) Growth is stronger in other countries.
Carry over for 2016 at the end of the second quarter is 1.3% for the Euro Area but 1.5% for Germany and 2.6% for Spain; but just 1.1% for France and 0.6%% in Italy. For other countries it is circa 1% except for Greece where it is still negative. Continue reading

My Macroeconomic column in 8 points: Will employment change the Fed’s strategy?

The main issue this week was the US employment figure as it may change the Fed’s mind on monetary policy. Nevertheless, employment is not the only aspect to mention to catch the US economy momentum. Another important issue, this week, is the rapid and deep drop of German industrial orders from outside the Euro Area. It’s a source of concern for the global investment dynamics. The last important point is the non-null probability of a rate lift-off at the Bank of England in 2016. Mark Carney has mentioned this possibility after the Monetary Policy Committee Meeting of the Bank. It’s not the first time that the BoE and Carney take this kind of commitment.

Eight points this week to follow the macroeconomic environment

1 – There was impatience to get the number of jobs creation in October in the US as it could be a trigger for a Fed’s rate move at its December meeting.
The number was strong at 271 000, way above expectations at 185 000. Nevertheless, the employment rate was almost unchanged for all classes of age and was unchanged for the 25-55 years of age. In other words, there were no supplementary pressures on the labor market even with employment surprising on the upside.
This figure comes after August and September during which the number of jobs creation was low. As a consequence, the average number of new jobs in the last 3 months is below the average of the 3 previous months: +187 000 in August, September and October versus 243 000 from May to July. Continue reading

Landmarks on Euro area growth in the first quarter

Growth figures in the Euro Area have been pretty good during the first quarter. The trend has dramatically accelerated in Spain, France is out of a long period of very low momentum and Italy is out of its recession.

Nevertheless, even with these good news, it is too early to be sure that the long stagnation that has characterized the Euro Area since the first quarter of 2011 is over. Austerity policies that were put in place at this moment have provoked a long recession in the Euro Area. The exit from this episode may start in 2015 with the new ECB monetary policy that focus on demand. 4 years to exit from the negative impact of these austerity policies that imagined that reduction in demand could imply a strong growth momentum (sic)
The current economic policy put demand at the front place to try to change the business cycle profile. I think that this is the best recipe to converge to a more virtuous business cycle.

This post wants to show the economic activity profile in the Euro Area and its main countries at the end of the first quarter. I do not give details of on composition of growth because usually only the GDP number has been published.

GDP Quarterly change
This graph shows the GDP quarterly change at annual rate. The red bar for the first quarter of 2015 shows strong performance in Spain, France and Italy. The German number is below expectations. Continue reading

My weekly Column – Views from Paris

The document in pdf is here Economic Weekly-NatixisAM-04-06-2015

Many things to look at this week

The first point to be mentioned is the lower momentum on US employment. In March, the number of new jobs was low at 126 000 versus 264 000 in February. January and February figures have been revised downward by -69 000. In a recent past, revisions were on the upside.
During the first quarter, less than 200 000 jobs were created each month on average (197 000 exactly) versus 324 000 for each month on average during the last quarter of 2014. The biggest change can be seen in “professional and Business Services” where the number of new jobs has been divided by a factor 2 between the last quarter of 2014 and the first of this year. In the manufacturing sector, 29 000 new jobs were created on average in the last three months of 2014. The number was just 6 000 on average for the first quarter.
USA-en-2015-March-employmentThe unemployment rate was stable at 5.5%. The wage rate for the private sector was up, on average, by 2.1% which is its average change during the last 12 months. There are no new nominal pressures from wages. Continue reading

Economic Weekly: Views from Paris

The complete document in pdf format is available here
Economic Weekly-NatixisAM-02-16-2015

Key element of the week starting February 9

The major point this week was on GDP growth in the Euro Area.
GDP was up by 0.3% (1.4% at annual rate (AR)) for the last quarter of 2014. For the whole year, growth was 0.9% and carry-over for 2015 at the end of 2014 is 0.35%

There are four groups of countries plus Greece. The first one contains countries where the level of activity is above the pre-crisis level: Germany, Belgium, Austria and France. German growth was +0.7% in the 4th quarter (2.8% AR) and 1.6% in 2014. In France, GDP was up by 0.1% (0.3% AR) in the fourth quarter and 0.4% for 2014. In Belgium growth was +0.1% (0.4% AR) and +1% for 2014 and in Austria numbers were +0.1% (0.4% AR) and 0.3% for 2014.
The Euro Area and Netherlands are in a catch-up zone, below the GDP pre-crisis level. In the Netherlands, GDP was up by 0.5% in the last quarter of 2014 (2% AR) and 0.8% for 2014.
In Spain and Portugal, the rebound is spectacular. GDP was up 0.7% (2.8%AR) and 0.5% (2% AR) respectively in the fourth quarter and 1.4% and 0.9% for 2014.
The Spanish GDP level is now above Finnish GDP regarding the pre-crisis level as a reference. Finland is in its third year of recession.
The fourth group is for Italy where GDP growth was 0% in the fourth quarter and -0.4% for 2014.
Greece is outside the classification as it GDP is down by more than 25% compared to the pre-crisis level. In the fourth quarter GDP was down by -0.2% (-0.8% AR) but for the whole year and for the first time since 2007 growth was positive at 1%
ea-2014-q4-gdpOther Important Issues
The other important point is what has happened in Sweden where the Central Bank has pushed down its repo rate into negative territory at -0.1%. The Riksbank has explained its move by the long lasting deflation seen in Sweden. Beside this measure and to fight it the Bank has announced that it will purchase government bonds for SEK 10bn.
In fact, Sweden as Denmark and Switzerland are constrained by the ECB strategy to keep its interest rates at the Zero Lower bound for an extended period. These countries must avoid an appreciation of their currency and must adopt a very accommodative monetary strategy
Mark Carney the Bank of England Governor said that interest rates could converge to 0 as the inflation rate will turn negative in 2015. He is persuaded that the next move will be a liftoff but….. A negative inflation rate and weak core inflation can change landmarks.
Retail sales were down by -0.8% in the USA in January. A lower gas price is an important explanation of this drop. Ex gasoline, retail sales change was 0%. Without auto sales and gas, core retail sales were up by 0.2%. It’s low but not alarming.
The Chinese inflation rate is trending downward to 0.8% in January from 1.5% in December. There is a role for lower energy prices but internal demand doesn’t create pressures and that’s worrisome
— The Japanese GDP was up by 0.6% (2.2% AR) in the fourth quarter. In 2014 GDP growth was null
— The industrial production index was stable in December for the Euro area and up by 1% (at AR) for the last quarter. In France, industrial production was up by 1.5% in December but down by -1.75% in Q4
— In Greece, the February 11 meeting was a failure as was the next meeting the 16, next Friday 20

What will happen this coming week?
— First surveys for February with the ZEW in Germany (Tuesday) and the flash estimate for the Markit survey in China, Japan, Euro Area, Germany, France and the USA (Friday)
— Inflation rate in France – It will drop in negative territory (Thursday)
— Inflation (Tuesday), employment (Wednesday), retail sales (Thursday) in the United Kingdom
— Industrial production and housing starts in the USA (Wednesday)