The situation is currently better in the euro area, so now is time to shake it up.
The long period of lackluster growth since 2011 led to a drop in potential growth. High unemployment and lack of investment dented the mainsprings of European growth. The euro area no longer has the same facility it had before the 2008 crisis to grow at an average pace of 2%. In the current circumstances, 2% looks close to the economic cycle peak, and the situation is even more stark in France, where growth stood at around 2% on average before the financial crisis, while the 2017 figure is poised to come to 1.8% at best. These figures along with statistics for 2018 are close to the cycle peak and we should expect growth to take a downturn from 2019 onwards. The role of economic policy should be to promote an improvement in potential growth to keep the economy on a stronger growth path over the long term.
Key areas for consideration. Continue reading
During the first half of 2017, the employment level came back at its pre-crisis peak level. This was already the case for the first quarter but it has been confirmed for the three months to June.
This robust profile in employment reflects a catch up when growth is more robust and with less uncertainty. On the graph we see that the employment profile is smoother than the GDP profile and is clearly in a catch up period.
Since the beginning of the recovery at the beginning of 2013, the Euro Area has added 6.6 million jobs. Continue reading
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
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.
I have written a column for Bloomberg view on how the new French President must boost growth
You can read it here
The new French President, Emmanuel Macron, has won with a large margin. He had 66.1% of voters versus 33.9% for Marine Le Pen the other runner up.
The hierarchy of the numbers is consistent with polls even if the final numbers were above the top for one and below the weakest for the other. This is shown on the graph below.
The margin is wider than the 60/40 financial investors had in mind. They were optimistic with 60/40 as the French economy is doing well (see here). With a wider margin and probably with a majority for the new president at the National Assembly we can expect strong financial markets in coming weeks.
On the political side, the postponement of voters has worked well for Macron. In days before the vote, a lot of voters from Mélenchon, Fillon and Dupont-Aignan joined Macron as they didn’t want Le Pen as president after the debate (last Wednesday).
The watershed between Macron and Le Pen was Europe. (see here and here)
Macron wants to adapt the French economy to a globalized world with the help of Europe. He has in mind to strengthen European institutions. He also says that he wants to adapt the French competitiveness to the global environment. That’s why he wants a lot of reforms. On Le Pen’s side, the target was to exit from all European institutions. She has this populist view that by closing borders, jobs and growth can be saved. Continue reading