Conjoncture
    Conjoncture - 05 July 2018
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    Major supply-side constraints and hiring difficulties emerged in late 2017. Though normal during phases of accelerating growth, they nonetheless caught our attention because other indicators are not showing the same degree of pressure. The output gap is a key cyclical indicator. As estimated today, it had not completely closed in 2017, and the low level of core inflation suggests it might have been even more negative. These trends raise the question of France’s position within the economic cycle. Based on our analysis, the French economy has moved out of the recovery phase and growth has peaked, although it is not showing the signs of overheating that typically mark the end-of-cycle period. The economy seems to be in the intermediary growth phase, during which the economy slows but continues to grow at a faster pace than the potential growth rate.
    Conjoncture - 07 May 2018
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    The CFA franc’s stability is a source of concern. The drop-off in oil prices has weakened one of the two CFA franc regions so much that fears of devaluation have emerged again. In the end, the status quo is bound to prevail. With IMF support, several countries have engaged in stabilisation programmes that are beginning to bear fruit. Liquidity indicators are still a far cry from the alert thresholds defined in the CFA monetary agreements, and the financial and inflationary effects of devaluation would be disastrous. Yet to sustain the currency peg, several major challenges lie ahead, not only for the West African Economic and Monetary Union (WAEMU), whose robust growth fuels macroeconomic imbalances, but also for the Central African Economic and Monetary Community (CEMAC), which is now paying a heavy price for its oil dependency.
    In the short term, the main risk for the Indonesian economy is a tightening of US monetary policy, which could place downward pressure on the rupiah. In the medium term, the country risks getting stuck in a “middle income trap”. The first risk is presumably small. Indonesia has consolidated its macroeconomic fundamentals over the past five years, and its external vulnerability has been sharply reduced. The second risk is higher. To transform itself into a high income country, Indonesia must follow South Korea’s growth model by developing its manufacturing sector. Yet the lack of infrastructure and a low-skilled population are hampering its development and its integration in global value chains. After President Widodo took power in 2014, numerous reforms have been launched. His re-election in 2019 would allow Indonesia to continue along this track.
    Conjoncture - 03 April 2018
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    Participants at the Paris Climate Conference COP21 agreed that global warming should be limited to 2°C. This would be the case if carbon concentrations could be stabilised at below 450 parts per million (ppm). However, simulations with climate models show that even at this level the risk of overshooting the 2°C limit is not negligible. From an economic point of view, it would be optimal to take early measures to reduce tail risks. To overcome public reluctance to make small sacrifices now to avoid substantial future damages, climate policies should be appropriately framed.
    None of the legislative proposals to reform the US mortgage market has yet come into force. Most of them start from the same position: although government guarantees are essential in ensuring a liquid and stable mortgage market, the Federal government should not be the sole party exposed to payment default risk, especially as this is transmitted through two agencies, Fannie Mae and Freddie Mac, that are in financial difficulties. In the absence of legislation, the regulator of the two agencies has sketched out the foundations of a reform, by developing a program to transfer “non-extreme” credit risk to the market.

On the Same Theme

Growth watch 7/29/2018
In the first part of 2018, several factors undermined French growth, including temporary ones like tax increases and transport strikes, and imponderables, such as the upward pressure on oil prices. In the second half, growth is expected to accelerate again as domestic support factors regain the upper hand (healthier job market, planned tax cuts, and favourable financing conditions and economic policy). Dynamic world demand is another, more uncertain part of our central scenario, which places downside risk on our growth outlook of an average annual rate of 2% this year.  
Office prices in Paris: sustainable or not? 7/13/2018
Office is the first asset class owned by institutional investors in real estate, ahead of retail and residential. Their portfolio in offices amounts to more than €900 bn in Europe. The two main European office markets are London and Paris.
Growth watch 7/11/2018
In the first part of 2018, several factors undermined French growth, including temporary ones like tax increases and transport strikes, and imponderables, such as the upward pressure on oil prices. In the second half, growth is expected to accelerate again as domestic support factors regain the upper hand (healthier job market, planned tax cuts, and favourable financing conditions and economic policy). Dynamic world demand is another, more uncertain part of our central scenario, which places downside risk on our growth outlook of an average annual rate of 2% this year.
7/9/2018
France: still waiting for an upturn in consumer spending 7/6/2018
With spending almost flat in the first quarter, purchasing power falling significantly and confidence waning further in June, the latest data regarding French consumers do not make pleasant reading.
Home affordability in France: Dichotomy between Paris and the provinces 6/20/2018
In provinces, home affordability measured by the ratio of the amount households can borrow (based on average household income and average credit conditions) to the average existing home price per square meter is at the highest level since the early 1990s, and 13% above the 1990-2017 average. In Paris, it is 18% below the 1990-2017 average, and 37% below the record high of 1999. The surge in house prices in Paris between 1998 and 2012 (+268%) heavily eroded households’ home affordability (-44%). This figure then picked up through 2016, lifted by lower interest rates and a slight decline in house prices, both in Paris (+28%) and in the provinces (+31%). Given the slight fluctuation in credit conditions since 2016, the home loan borrowing capacity has moved closely in line with household revenue trends. In 2017, in contrast, the home affordability index remained relatively stable in the provinces due to a mild increase in property prices (+2.6%), but declined in Paris, where home prices accelerated (+8.7%).
Will the growth rebound occur? 6/8/2018
The expected clear growth rebound in Q2 (0.6% q/q according to our forecasts), after the Q1 soft patch (0.2% q/q), is at risk. Business confidence surveys remain at a high level but they have continued to slip in April and May.
Housing purchasing power in France 6/7/2018
Residential prices in France: sustainable or not? An approach based on the housing purchasing power of households.
6/5/2018
France: is the acceleration over? 6/1/2018
No more acceleration in French growth in 2018 compared to 2017? This is the question of the day. It seems indeed more likely that growth in 2018 will be below the 2017 figure, whereas only recently it was expected to be stronger. This new outlook is due to two revisions: the upward revision of 2017 growth, and the downward revision of 2018 forecasts.

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