Population ageing creates major challenges for PAYG retirement systems in the OECD countries. Reforms are needed to their sustainability. These reforms have taken two directions: lower benefits or the extension of the retirement age. Based on current regulations, in most countries, benefits will be less generous for future cohorts. In Poland, replacement rates - the percentage of an individual's latest employment income that is replaced by a pension benefit upon retirement - could be more than halved compared to those retiring now. Another possibility is the lengthening of the normal pension age. Countries that have linked the pension age to life expectancy will be able to maintain benefits at a relatively high level
According to the first estimates, economic activity contracted for the third quarter in a row in Q4 (-0.3% y/y). Manufacturing industry was the most affected and contracted by 2%. In 2019, real GDP contracted by 0.1%, after recording a 2% growth in 2018. Real GDP growth should pick up in 2020 (+0.6%), but remains under its potential (estimated at 2.5% by the IMF). Indeed, one year after Andres Manuel Lopez Obrador came to power, his economic policy is still hard to read and weighs on investment. The future of the energy sector also raises doubts, affecting investor sentiment, both domestic and foreign
In a period of declining interest rates, the interest margin on transactions with customers has widened due to greater inertia on the downside of yields on bank assets compared to that of the cost of resources. Portuguese banks, however, hold a large share of variable rate loans which tends to accelerate the downward adjustment of the yield on the loan portfolio. In a context of durably low interest rates and close to zero cost of resources from customers, the sustainability of the interest margin will depend essentially on the ability of Portuguese banks to maintain the current rates applied on new loans[1]. A further decrease in interest rates on new loans would drive the margin on new transactions well below the margin on outstanding amounts
As the unemployment rate stabilises owing to the economic slowdown (14.1% in November 2019), the active population is finally rebounding. This is mainly due to the stabilisation of the number of young workers under the age of 30, after several years of decline. The chart shows that this decline had been strong since 2009. Such a decrease has been observed in the 30-40 years-old age group as from 2011-2012. For the latter group, the decline continues today. Conversely, the labour force over 40 and over 55 years old has never stopped growing, even during the years of crisis. These trends are mainly the results of changes in the participation of various age groups to the labour market
Mozambique urgently needs to resume a medium-term agreement with the IMF, the latter having suspended its cooperation in 2016, after discovering a hidden debt of around 1.2 billion dollars. Already, a first default of a Eurobond issued on 2013 for an amount of 850 billion dollars, in order to finance patrol vessels, had led to a first restructuring. Following a second default in January 2017, a new restructuring agreement for about 900 billion dollars has been reached last September. Nonetheless, the Mozambican state creditworthiness remains very fragile. A part of the hidden debt (around 8% of GDP) remains in default and a judicial battle is underway against Mozambican’s state. The latter is asking for the deletion of one of the two state guarantees issued
Our home affordability index measures the ratio of the borrowing capacity of households (based on average household income, average fixed mortgage rates and average mortgage duration1) to the average existing home price per square meter (m2). Over the past ten years2, home affordability has increased by 30.4% in the provinces, but declined by 12.2% in Paris. Changes in average credit conditions (the average duration was extended to 18.8 years from 17.8 years, and mortgage rates declined to 1.30% from 4.30%) and disposable household income (+7.1%, notwithstanding differences in level) were relatively homogeneous at the national level, which means the differential can be attributed almost exclusively to the spread in existing home prices changes since 2009: home prices have increased by 64
Although not as significant as during the 2004-2007 boom period (+4.8 % per year on average), the dynamism of French business investment has nonetheless been noteworthy since 2014 (+3.4%). In 2018, its contribution to GDP growth (0.5 percentage points) was slightly above the one of household consumption (this latter lacking itself in dynamism) and in 2019, according to our forecasts, it would be barely below. The outcome of business investment being the main engine of French growth is very unusual. Its breakdown by products and its evolution over the time are also noteworthy: the current dynamism is based up to 40% on investment in information and communication services, far above all other products and twice as much as its share during the 2004-2007 period
When looking at Colombia’s creditors by residence and type of institution over the past 10 years, we observe three main dynamics at play: first, non-residents have increased their exposure to the sovereign in both relative terms but also in absolute terms as the general government’s debt burden has increased by 20 percentage points of GDP in the intervening time. Second, most of that increase has been driven by larger holdings from foreign non-banks (i.e. investment management industry) which in fact have captured the shortfall in sovereign financing left behind by domestic banks. Finally, non-residents have altered the currency composition of their holdings as evidenced by their comparatively much larger exposure to local currency public debt instruments over the period.
The 2014 reform of US money market funds led to a massive reallocation of cash from funds invested in private debt (prime funds) to funds invested in public debt (government funds)*. Foreign banks, traditional borrowers of prime funds, were deprived access to US dollars, while the US Treasury, federal agencies and American banks attracted fund inflows**. With the improvement in average returns over the past two years, the savings collected by government funds and prime funds have both increased sharply, up USD 450 bn and USD 430 bn, respectively
Certain gases in the atmosphere, such as carbon dioxide (CO2), are largely opaque to the Earth’s infrared radiation and keep heat at the Earth’s surface trapped, like a lid. This is the greenhouse effect, identified in 1824 by French mathematician Joseph Fourier. Its intensity has always varied, but human activity has caused it to disrupt. Since the pre-industrial era – generally accepted as the period from 1850 to 1900 – human activity has caused 2,000 billion tonnes of CO2 to be released into the atmosphere, increasing the Earth’s temperature by 1°C. That increase is now accelerating. It will reach 3-5°C by 2100 if carbon emissions continue at their current trend. Few species can adapt to that rate of change, which is a hundred times faster than during interglacial periods of warming
Economic growth has averaged only 1% per year since 2015, and weakened further in H1 2019. Exports have suffered from slower world demand growth while structural constraints have weighed heavily on investment, which has declined continuously since early 2018. Major power outages have disrupted activity in 2019: they result from the severe troubles of state-owned company Eskom, and illustrate well the country’s lack of infrastructure. Only steady progress in the structural reform process will allow investment to recover in the medium term. Meanwhile, real GDP growth is expected to remain low (projected at 0.4% in 2019 and 0.8% in 2020) and policymakers’ room for manoeuvre to boost domestic demand is very narrow
In September 2019, outstanding sight deposits collected by credit institutions remained particularly dynamic (+ 11.9% year-on-year) and amounted to more than EUR 1,106 bn. This change concerns all customers and especially non-financial corporations (NFCs). First contributors to the growth of total sight deposits each year since 2011, their share within the latter has increased significantly. Several explanations can be given. The low or negative interest rate environment weighs on the attractiveness of other investments compared to sight deposits. Moreover, it contributes to the expansion of NFCs’ bank credit flows, which have been relatively well correlated with their flow of sight deposits since the beginning of the decade
Revenue of older people mainly consists of state and occupational pensions and income from savings and work. In countries that have, relatively speaking, more generous pension benefits, labour participation of the elderly is relatively low. In France, only 3% of people older than 65 still work, compared to almost 20% in the US and 25% in Japan. Moreover, the French old age poverty rate, the percentage of seniors (66+) whose income is lower than 50% of the median household income, is among the lowest in the OECD. The chart shows that, in general, there is a positive relationship between the percentage of revenue of older people coming from work and their at-risk-of-poverty rate. It thus seems that, when seniors feel financially constrained, they decide to work longer
At its 25 October monetary policy meeting, Russia’s Central Bank cut its key policy rate by 50 basis points to 6.5%, the lowest level since 2014. This had been the fourth key rate cut since June. Monetary easing occurs at a time when inflationary pressures are declining (4% year-on-year in September) while economic activity remains sluggish. The Central Bank is now forecasting a growth of between only 0.8% and 1.3%, which is close to the growth forecasts of the IMF and World Bank (1.1% and 1%, respectively, vs. 2.3% in 2018). This slowdown can be attributed to the deceleration in both domestic and external demand
Concerned about reducing pressure in the money markets, the Federal Reserve (Fed) will proceed with outright securities purchases in addition to its repurchase agreement operations (repo). At the end of the year, between USD 365 bn and 400 bn* in central bank money could thus be injected into the current accounts of banks. Given the current amount of the outstanding liquidity lent, the upward trend in currency in circulation and the foreseeable rebuilding of the Treasury account with the Fed, the banks’ reserves with the central bank are unlikely to increase by more than USD 130 bn by the end of the year (to a total of nearly USD 1600 bn, the April 2019 level)
Weekly charts highlighting points of interest in the world economy
