Based in Paris, BNP Paribas' Economic Research Department is composed of economists and statisticians:
The Economic Research department’s mission is to cater to the economic research needs of the clients, business lines and functions of BNP Paribas. Our team of economists and statisticians covers a large number of advanced, developing and emerging countries, the real economy, financial markets and banking. As we foster the sharing of our research output with anyone who is interested in the economic situation or who needs insight into specific economic issues, this website presents our analysis, videos and podcasts.
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One of the shocking paradoxes of America, cradle of the miracle of vaccines against Covid-19, is that the country is still seeing daily death numbers in the thousands. The still-too-deadly wave of the epidemic over the summer may have contributed to the slowing of the recovery in employment.
On the whole, the US economy has recovered very quickly, albeit unequally, from the loss of business caused by the Covid-19 pandemic. Exceptional Federal transfers have fuelled a spectacular rebound in private consumption, so much so that it is nearly overheating. Faced with a global parts shortage and hiring troubles, companies are having a hard time meeting demand. Prices have come under pressure. For the US Federal Reserve, the time has come to begin withdrawing monetary support. The debt ceiling has just been hit, and major budget bills remain in suspense until an agreement to raise the limit can be reached with the Republicans.
After paying a heavy toll to the Covid 19 pandemic, the UK is getting back on its feet. Now that more than 80% of the adult population has been vaccinated, the UK economy was able to reopen for business this summer and to operate almost normally despite the spread of the highly contagious Delta variant. Just as the recovery is running up against supply-side constraints, the government of Boris Johnson is removing fiscal support measures as it proclaims the end of “whatever the cost”. Euphoric so far, the recovery should calm down somewhat by the end of the year.
Initially tempted to experiment with herd immunity to combat Covid-19, the Scandinavian country with the highest number of Covid-related deaths has largely converted to vaccinations, and the economy is on its way to returning to normal. Sweden is taking advantage of its specialisation in machinery and transport equipment, for which there is currently strong global demand. Dynamic exports are boosting corporate investment. As the Riksbank prepares to end its securities purchasing policy, the Swedish government is trying to avoid withdrawing its fiscal support too abruptly.
With relatively few Covid-19-related deaths, and after what proved to be a mild recession in 2020, Denmark is one of the countries that has pulled through the pandemic the best. Economic activity has already returned to pre-crisis levels, the cyclical environment was still going strong over the summer months, and the spread of the Delta variant did not pose much of a threat to a largely vaccinated population. The rapid economic recovery is already revealing a few tensions in terms of production capacity and employment. The central bank is not very alarmed and is expected to maintain the status quo, with negative money market rates. The government has begun to better target its subsidies.
Inflation largely surpassed expectations at 3.2% year-on-year, the highest level since 2012, and well above the Bank of England’s official target of 2%. As a result, BoE Governor Andrew Bailey must officially explain why inflation is above target and whether the situation will last.
In his traditional monetary-policy speech to the annual Jackson Hole Economic Symposium, Federal Reserve Chairman Jerome Powell expressed satisfaction with the latest US jobs market figures. He had good reason to do so: in the three months from June to August, the US economy created more than 2.2 million jobs (non-farm activities), including almost 800.000 in the resurgent tourism industry (hotels, restaurants, leisure etc.). Although the Covid-19 jobs deficit remains large (around 5.5 million) and although the unemployment rate is still too high by American standards (5.2%), the situation is gradually returning to normal.
With nearly 35,000 new daily cases reported last week, the Covid-19 virus is gaining ground again in the UK. There is an encouraging sign, however, that proves the effectiveness of the vaccine: the number of severe cases seems to be increasing much less rapidly than during previous waves.
With the onset of the Covid-19 pandemic, the labour force participation rate – the percentage of the population who are working or seeking employment – dropped to an all-time low in April 2020: barely 74% of the 20-64 age group, which is unprecedented for the United States. Although it has picked up in recent months, it still has not returned to pre-crisis levels. Nearly 3 million Americans who were active in the labour force prior to the pandemic have disappeared from the ranks. The workers who have “fallen off the radar” are mainly from low-skilled, low-paid social categories. According to the Bureau of Labor Statistics, people with a high school education or less make up only 30% of the active population, but account for 75% of the post-Covid collapse
After the catharsis of this spring, which saw the rollout of the Covid-19 vaccine alongside that of the billions provided by the Biden plan, the business climate in the US has calmed somewhat. In June, the Institute for Supply Management (ISM) purchasing managers index was at 60.6 in the manufacturing sector, which though high in absolute terms (the long-term average is around 53) is nevertheless down as compared to previous months, and particularly the record month of March. The same modest correction was seen in services.
With GDP growth of nearly 7% this year, the US economy is in the midst of a spectacular but uneven recovery, erasing the losses generated by the pandemic, but also leaving numerous workers behind. Fuelled by rising commodity prices and surging consumption, inflation has reached a peak of 5%, the highest since 2008. Esteeming that this flare up will be short lived, the Federal Reserve (Fed) is being tolerant and will forego a preventative tightening of monetary policy. Its top priority is to see the recovery spread to all sectors of the economy and to restore full employment in the labour market.
No sooner had the divorce agreement with the European Union been signed than the UK started disputing its terms. On 16 March, the British government was formally notified by the European Union for breaches of the Protocol on Ireland and Northern Ireland and violation of the duty of good faith. The final outcome, which can include sanctions, is yet to be decided. The fact remains that Brexit, described as a “historic mistake” by the remaining 27 members of the EU, appears as nothing more or less than what it is: a clear break. Admittedly, it will not stop the UK economy from recovering
Our barometer this week shows a phenomenon that is attracting increasing comment in the US: a significant rise in inflation as the Covid-19 pandemic recedes. Some people, including the Chair of the Federal Reserve Jerome Powell, are playing down the increase, while others, such as former Treasury Secretary Lawrence Summers and economist Nouriel Roubini, see it as a possible paradigm shift.
The double whammy of Brexit and the health crisis has hit the economy hard. In 2020, GDP contracted by 9.8%, the weakest performance by a G7 country and the UK’s worst year since 1920. In the first quarter of 2021, GDP fell by a further 1.5%, due to lockdown measures introduced to tackle the second wave of the epidemic and despite considerable fiscal support
The vaccine keeps its promises, so does Joe Biden. With USD 400 bn in stimulus checks nearly in pockets and partial immunity achieved against Covid 19, Americans are on the move to spend again. After a record-breaking month of March, private consumption surged by more than 10% (seasonally adjusted annual rate, saar) in the first quarter. GDP rose 6.4% (saar) and will continue to accelerate in the weeks and months ahead.
In the United States, there has been a series of “once-in-a-generation” recovery plans that have little in common. Unlike the USD 1.9 trillion “American Rescue Plan” adopted in March, the nearly USD 2.3 trillion “American Jobs Plan” proposed by President Biden is geared towards the long term and aims to be fully financed through taxes. Designed to defend America’s strategic interests, the plan’s philosophy is similar to the American Recovery and Reinvestment Act of 2009. Yet the Biden administration is not foregoing a multilateral framework: its plan is also intended to serve as a vehicle for international fiscal harmonisation.
It is a true pleasure to read the April 2021 edition of the Beige Book, which the Federal Reserve Board (Fed) publishes eight times a year on current economic conditions in the US. Without exception, all twelve districts covered by Fed surveys reported an improvement in the business climate, with the wealthiest and most productive regions of the northeast, like Philadelphia, bordering on euphoria.
The US economy has taken off. Bolstered by the easing of the Covid-19 pandemic as much as by unprecedented fiscal support, GDP will soar by at least 6% in 2021, surpassing the pre-crisis level of 2019. Inflation will accelerate and temporarily overshoot the Federal Reserve’s 2% target. Nonetheless, the central bank will not deviate from its accommodating stance. The Fed’s top priority is employment, which continues to bear the scars of the crisis and has a long way to go before making up for all of the lost ground. As a result, monetary conditions will remain accommodating, both for the economy and the markets, even at the risk of encouraging some excessive behaviour.
Gambling has risks, but sometimes you win big. No stranger to risky gambles (Brexit, herd immunity to Covid-19…) the UK Prime Minister, Boris Johnson, can now claim that one of his wagers – betting early and big on vaccines – has allowed his country to be amongst the first to see the light at the end of the tunnel. Having been in strict lockdown since the beginning of the year, and whilst also suffering from a collapse in trade with the European Union, the economy now seems to have touched bottom; economic surveys and mobility reports promise better days ahead. Both fiscal and monetary policy will help support the recovery, before thoughts move to addressing the deficit, with the first turn of the screw expected in 2023.
With relatively few deaths and only a mild decline in GDP in 2020, Denmark has been fairly resilient in the face of the Covid-19 pandemic. To counter a second wave of the virus, more restrictive health measures had to be introduced in early 2021, which will push back the timing of the recovery, albeit without jeopardising it. With its vaccination campaign unfolding smoothly and the extension of fiscal support measures, the country is well positioned to exit the crisis. To better control the krone’s peg to the euro, Denmark’s central bank has made major adjustments to its monetary policy.
Having been hit particularly hard by Covid-19 (more than 126,000 Britons have died so far), the UK is now one of the countries vaccinating most rapidly. With 31 million doses administered since the beginning of the year, coverage of the population has reached 46%...
Totalling USD 1.9 trillion or 9 percent of GDP, the American Rescue Plan ranks among the largest stimulus packages ever launched in the United States. The plan aims to overcome the Covid-19 pandemic, but does not stop there. The new supportive measures, combined with those approved in December 2020, could rapidly bring the US economy under pressure; Inflation is not the biggest threat, even though it is expected to rise above 2%. The surge in prices is likely to be short lived since global competition and the accelerating digital revolution are bound to have a moderating effect. Among the possible harmful effects is the risk of fuelling speculative behaviours in certain market segments (tech stocks, high-yield bonds…).
With deaths from Covid-19 having exceeded the startling level of 500,000 in the US, other cheerier statistics have driven the markets forward; The acceleration in the vaccination campaign, which has already administered 100 million doses, and the associated fall in the number of new cases, to close to their lowest level since the pandemic began, have, day by day, built hope that the crisis is nearing its end...
Proponents of debt cancellation programmes sometimes argue that public debt will never be paid off, but that is not the question. In France, public debt denominated in euros (or in euro-equivalent francs before 1999) has increased constantly throughout the post-war period, without anyone dreaming of cancelling it. The high growth and inflation rates of the Thirty Glorious Years worked their magic. Between 1945 and 1975, debt outstanding increased about 10-fold, with the franc’s depreciation bolstering the external component, while the debt ratio plunged from over 100% of GDP to less than 20%. In 2021, following a series of crises (the financial and euro crises, and then the Covid-19 crisis), debt has soared to peak levels again (117.8% of GDP according to European Commission estimates)
