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Economic Pulse

Fourth wave 
10/24/2021 • By Jean-Luc PROUTAT

Did the UK government lower its guard too quickly? Since early July, it has lifted nearly all of the sanitary barriers to counter the Covid-19 pandemic. London no longer requires masks to be worn in public spaces, even indoors, nor the presentation of a “health pass”. These measures are left to the discretion of each individual. As a result, the “freest country in Europe”, according to UK minister David Frost, is also the one that reported the highest number of new cases in fall 2021: nearly 45,000 new cases a day. This is ten times more than in France, while the two countries have comparable populations and vaccination rates (67% altogether). 

Economic Pulse

Mobility: Upturn in new Covid-19 cases in Europe
10/24/2021 • By Tarik RHARRAB

More than 2.85 million new Covid-19 cases were reported worldwide between 14 and 20 October, a 2.3% decrease from the previous week. This has been the smallest decline since August. All regions contributed to this drop with the notable exception of Europe, which reported an increase for the fourth consecutive week of 14.7% (chart 1). Of the 2.85 million new cases worldwide, 1.16 million were reported in Europe (41% of the total). The number of new cases was highest in the UK (295,643), Russia (211,841), Ukraine (102,564), Romania (100,733) and Germany (68,259). Vaccination campaigns continue to progress around the globe (chart 2), although the pace has slowed recently.  Retail and recreation footfall barely exceeds pre-pandemic levels in Belgium and Germany

EcoWeek 18 octobre 2021

Editorial

The risks associated with transitory but high inflation
10/17/2021 •

Although the significant increase in inflation in most advanced economies is expected to be transitory, it is necessary to focus on the potential consequences of inflation staying temporarily high for longer. Companies that hitherto have been reluctant to raise prices might do so after all, higher inflation could weigh on spending but also cause wage demands to grow, inflation expectations could drift higher, the market sensitivity to growth and inflation surprises would increase and there could be fears about a change in the reaction function of the central bank. In the coming months, investors and central banks will scrutinise data in parallel, but the former will react more quickly should inflation stay high.

Economic Pulse

Optimism moderates
10/17/2021 • By Guillaume DERRIEN

Despite more than 80% of the adult Italian population having received a full vaccination schedule, the government has decided to introduce new constraints to keep the Covid-19 epidemic under control. At the economic level, the impact of this decision is likely to be felt most in the labour market, accentuating labour shortages, and particularly in the transport sector, where between 25% and 30% of workers still do not have the health pass, according to estimates from Confreta, the union for the industry.

Economic Pulse

Fiscal tightening can wait

10/17/2021 • By Guillaume DERRIEN

The sections of our Pulse on industrial production and retail sales deteriorated significantly. This mainly reflects base effects linked to the catch-up in activity in the first half of 2021. In the coming months, household spending could be held back by the rise in energy prices, which shows no sign of slowing down, and possibly also by lengthening delivery times for certain products.

Economic Pulse

Rising energy prices are clouding outlook
10/17/2021 •

In the past few months, activity was hampered by the state of emergency in large parts of the country, which affected in particular the services sector. In addition, the manufacturing sector was confronted with supply disruptions, specifically in the car industry. Finally, the substantial base effects related to the pandemic make it difficult to interpret the year-on-year data.

Economic Pulse

Mobility: Footfall drops below pre-Covid levels in the main developed countries
10/17/2021 • By Tarik RHARRAB

The number of new Covid-19 cases around the world dropped below the symbolic level of 3 million in the week of 7 to 13 October, representing a 7% fall on the previous week. This fall was shared across all regions other than Europe, where case numbers climbed for the third week in a row. This increase has mainly been focused on Eastern Europe, the UK and, more recently, Germany. Meanwhile vaccination campaigns have continued to gain ground.

EcoWeek 10 octobre 2021

Editorial

Market timing, the zero lower bound and QE
10/10/2021 •

Successful market timing between equities and cash requires high skill levels. Very low official interest rates, through their impact on market rates, create a disincentive for doing market timing because they increase the break-even skill level. The same applies for quantitative easing. These considerations are important from a financial stability perspective. Growing investor reluctance to do market timing will probably lead to a decline in equity market volatility and an increase in equity valuations. The former provides a false sense of safety whereas the latter increases the sensitivity to negative news and hence increases the riskiness. 

Economic Pulse

PMIs: Activity stabilises but price pressures remain intense
10/10/2021 •

The world composite PMI hardly changed in September, despite a rather significant decline in the Eurozone, driven by Germany, Italy and Spain ; Japan and Russia edged higher. The world manufacturing PMI was unchanged in September. Supply chain disruptions and supply bottlenecks continue to weigh on activity levels.

Economic Pulse

Eurozone: Confidence surveys show some resilience in September
10/10/2021 • By Hélène BAUDCHON

According to our Pulse, the economic situation in the euro zone remains good (the blue area exceeds the grey hendecagon indicating the long-term average of the various indicators) and is relatively stable relative to the previous three months (the blue area is close to that delimited by the dotted line), with the notable exception of retail sales.

Economic Pulse

Damaging tardiness
10/10/2021 • By Jean-Luc PROUTAT

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.

Economic Pulse

Covid-19: The decline of new cases continues
10/10/2021 • By Tarik RHARRAB

The number of daily new Covid-19 cases reported worldwide continues to decline. Meanwhile, there has been a recent drop in visits to retail and recreation facilities in France, Italy, Belgium, Japan and the UK, but continued increases in Germany, Spain and the USA. It is worth noting that in Belgium such visits are still at their pre-pandemic levels, despite recent falls.

EcoWeek 3 octobre 2021

Editorial

Bad inflation clouds outlook
10/03/2021 •

When the pick-up in inflation during a growth upswing is driven by the demand side, inflation is considered to be good. However, inflation can also be bad. In that case, higher prices do not follow from e.g. higher wages due to a tight labour market. Bad inflation rather reflects supply-side shocks. This is, to some degree, the situation that is unfolding in the Eurozone and other economies due to the recent huge increase of oil and gas prices. Bad inflation weighs on households’ real disposable income and hence spending. The impact is expected to be larger for households at the lower end of the income distribution, considering that a bigger portion of their expenditures goes to fuel and in particular heating, and that they also have a lower savings rate.

Economic Pulse

Boost to growth needed
10/03/2021 •

Our Pulse chart shows that the economic situation in Q3, designated by the blue area, was almost unchanged from that in the previous quarter, represented by the area delimited by the dashed lines. Recent business cycle indicators even suggest that the recovery is losing steam. The ifo business indicator has been declining since July. In particular, the manufacturing sector is reporting a worsening of business conditions as both activity and expectations are on a declining trend.

Economic Pulse

Confidence rises in September despite higher inflation
10/03/2021 • By Hélène BAUDCHON

For the first time in several months, the INSEE and Markit business climate surveys did not move in the same direction in September. The INSEE composite index picked up slightly (up 1 point to 111), while the composite PMI continued to erode (down 1 point to 55). The activity component of the manufacturing PMI declined more sharply (down 3 points to 51.3) than for the services PMI.

Economic Pulse

Covid-19: the pace of vaccination slows
10/03/2021 • By Tarik RHARRAB

The Covid-19 pandemic continued to ease for the fifth consecutive week, with new cases down by 10.3% between 23 and 29 September, relative to the previous week (chart 1). This represents the biggest fall in case numbers since the end of August 2021. As far as visits to retail and recreation facilities are concerned, we have recently seen weaker numbers in some euro area countries.  

EcoWeek 26 septembre 2021

Editorial

Monetary desynchronisation: a headache to come?
09/26/2021 •

Monetary desynchronisation between the US and the Eurozone seems unavoidable due to a very different performance in terms of inflation. Whether this will complicate the ECB’s task of reaching its inflation target depends, in the short run, on the impact on financial conditions in the euro area. This influence will probably be small. In the medium run, when the US tightening cycle is well underway, US domestic demand growth will be slowing down, which will weigh on imports and hence Eurozone exports to the US. This would complicate matters for the ECB if by then, inflation has not yet reached its target. 

Economic Pulse

Uncertainty: indicators show diverging developments
09/26/2021 •

Our different uncertainty gauges are complementary, in terms of scope or methodology. Based on the latest readings, some divergence is developing. This probably reflects the role of supply disruption that is causing bottlenecks and, in certain countries, the rapid spreading of the Delta variant. 

Economic Pulse

International trade: demand pressure remains elevated
09/26/2021 • By Guillaume DERRIEN

Most indicators confirm that world demand for industrial goods is still going strong, suggesting an accentuation or at least the continuation of the supply-chain problems currently facing many companies. Production pressures are compounded by transport pressures, which were showing no signs of easing in early fall. 

Economic Pulse

Epidemiological indicators: a downward trend is taking shape
09/26/2021 • By Tarik RHARRAB

The global Covid-19 pandemic continued to ease for the fourth consecutive week, with new cases down by 6% between 16 and 22 September, relative to the previous week. This downward trend was observed in all regions. Meanwhile, vaccination campaigns have continued to gain ground.

EcoWeek 19 septembre 2021

Editorial

Upside risks to inflation
09/19/2021 •

Although they have eased recently, high Eurozone manufacturing price pressures are fuelling analysts’ concerns that inflation could stay high for longer. There is an impression that the ECB is increasingly sympathetic for this view. This is important in the run-up to the December meeting of the governing council. Whether supply bottlenecks and rising input prices will have a longer-lasting effect on inflation depends on the transmission to the rest of the economy. One would expect it to be higher under a combination of strong demand, low inventory levels and long supplier delivery times. This corresponds to the current situation in the sectors producing durable consumer goods, intermediate goods and investment goods

Economic Pulse

Another hard blow to private consumption

09/19/2021 • By Christine PELTIER

China’s economic growth slowed sharply over the summer. Lockdown measures reintroduced in response to the resurgence of the Covid-19 pandemic and the threat of the new Delta variant dealt another blow to private consumption. Growth in retail sales volumes dropped to 6.4% year-on-year in July and then to 0.9% in August, from an average of 11.9% in Q2 2021.

Economic Pulse

Inflation surges
09/19/2021 • By Jean-Luc PROUTAT

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.

Economic Pulse

Pandemic numbers continue to decline
09/19/2021 • By Tarik RHARRAB

The number of deaths also declined for the third consecutive week, down 3% compared to the previous week. In terms of retail and leisure activity, footfall has returned to pre-pandemic levels in Germany, Belgium, France and Italy, while it is still below pre-Covid levels in Spain, the United States, Japan and the UK.

EcoWeek 13 septembre 2021

Editorial

ECB: accommodation with no end in sight
09/12/2021 •

The new macroeconomic projections of the ECB staff provide sobering reading for savers hoping that, one day, the policy rate will be raised. It is clear that at the current juncture, certain conditions of the recently updated forward guidance on interest rates states are not met. Based on the latest ECB projections, it seems this would still be the case in 2023, even under the hypothesis of a mild scenario. The slow increase of underlying inflation would probably be considered as unsatisfactory. Savers can only hope that the interaction between growth and inflation will evolve or that the ECB projections turn out to be too cautious.

EcoWeek, the weekly Economic Research round-up, looks back on the economic and financial news of the past week.

In his editorial, the Chief Economist analyses a decision, event or trend, with the help of graphs. Topics covered include the monetary policy decisions of the main central banks, in particular their interest rate trends and decisions (monetary tightening, quantitative easing), the evolution of bond yields (in particular the German Bund, the euro zone reference rate and the United States Treasury), the main budgetary policy choices of developed (OECD) or emerging (China, India, Brazil and Russia, in particular) economies and their immediate and future effects on the countries’ economies, global trade and financial market psychology, etc.

The Barometer section provides a summary of the main economic indicators of a country or zone (United States, euro zone, France, Germany, United Kingdom, etc.), of global trade (e.g. volumes and new export orders, strains on value chains, Baltic Exchange Dry Index, freight rate, delivery times), of credit momentum in the euro zone (according to the European Central Bank’s lending survey), or uncertainty indicators (e.g. media coverage, dispersion indices, geopolitical risk index).

The Calendar section highlights the important dates of the coming week (expected economic data, central bank meetings, press conferences, publications, etc.) and the same updated data from the previous week.

In addition, EcoWeek provides a Market Review (money and bond markets, interest rates, currencies, commodities, performance by sector, oil prices, etc.), as well as an update of the economic scenarios for the United States, China, the euro zone and France. Lastly, economists provide regular commentary on forecasts for interest and exchange rates, as well as growth and inflation in several countries.