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Economic Pulse

The real estate crisis spills over to the economy 
11/21/2021 • By Christine PELTIER

Our monthly Pulse highlights the cyclical deterioration of the Chinese economy in August-October 2021 compared to the previous 3-month period. While the situation in the industrial sector improved in October after a sharp slowdown in September, the correction in the real estate sector has continued. Industrial production growth picked up slightly in October (+3.5% y/y in real terms, compared to 3.1% in September and 5.3% in August). In fact, the measures introduced by the authorities rapidly eased energy constraints last month. 

Economic Pulse

Sector and regional heterogeneity helps limit the deterioration in the cyclical environment 
11/21/2021 • By Hélène BAUDCHON

According to our Pulse, the Eurozone’s cyclical situation has deteriorated over the past three months (the blue area is smaller than the area within the dotted lines). Hard data have dropped sharply but the decline in business climate surveys has been much milder. This difference is due to statistical distortions. For retail sales and production, the sharp decline in growth rates in year-on-year terms since May reflects a normalisation after the previous 3-month average was inflated by very favourable base effects in March and April. 

Economic Pulse

Towards slower growth in Q4 2021?
11/21/2021 • By Guillaume DERRIEN

After two solid quarters, Italian GDP growth is expected to slow in Q4 2021. Real GDP rose 2.7% q/q in Q2 2021 and 2.6% q/q in Q3. Yet there was an encouraging catching-up movement through the fall, which led the European Commission to revise strongly upwards its 2021 growth forecast, to 6.2%, from its previous outlook of 4.2% last spring. While a new epidemic wave could weigh on activity in the coming weeks, Italy is currently facing a level of contamination much lower than most other European countries.

Economic Pulse

Headwinds to growth are building
11/21/2021 • By Guillaume DERRIEN

Like other economies, Spain is currently facing several headwinds, including labour shortages, supply-chain problems and inflation. The country is now also facing the risk of another upsurge in the pandemic. In mid-November, the number of Covid-19 cases was still holding at a very moderate level, but it now seems to be ticking upward, a movement that is bound to accelerate with the approach of winter. Even so, Spain benefits from a high vaccine coverage ratio (more than 80% of the population is fully covered by the vaccine), meaning that the country can look forward to a less perilous winter than last year. 

Economic Pulse

Mobility: retail and leisure footfall holds at high levels as the pandemic resurges
11/21/2021 • By Tarik RHARRAB

The curve of new Covid-19 cases is holding to an upward trajectory in most regions of the world. As to retail and leisure footfall, it is still trending downwards in Germany and Italy, at a much faster pace than in France, Spain or the UK. Belgium stands apart because its retail and leisure footfall has been relatively stable during the recent period. This is also the case for the United States, while in Japan, the trend has begun to decline again after several months of positive momentum. It is worth noting, however, that footfall is holding at high levels despite the resurgence of the pandemic in most of the main advanced countries.

EcoWeek 14 novembre 2021

Editorial

Euro area labour market bottlenecks: cyclical aspects
11/14/2021 •

In the euro area, business surveys report record-high staff shortages. They represent a headwind to growth and raise the possibility of faster wage growth and a pick-up in inflation. Thus far, growth of negotiated wages has been subdued but, given its historical relationship with labour market bottlenecks, an acceleration seems likely. Despite the difficulties of companies in filling vacancies, labour market slack has remained above pre-pandemic levels. This situation should improve in the coming months but whether this eases labour market tensions depends on companies’ hiring intentions. Based on recent surveys, these should remain elevated.

Economic Pulse

Inflation rises above 6%
11/14/2021 • By Jean-Luc PROUTAT

The “transitory” surge in inflation is proving to be long lasting. In October, US inflation rose to 6.2% year-on-year, the highest level in 31 years. As in previous months, the main explanation is a ballooning energy bill (which accounts for 30% of this figure), but the acceleration in prices is spreading throughout the US economy. It can be seen in the cost of shelter, which is already up 3.5% year-on-year, and is surely bound to accelerate.

Economic Pulse

Covid-19: towards a fifth wave in Europe
11/14/2021 • By Tarik RHARRAB

The number of weekly new Covid-19 cases in Europe continued to rise for the seventh consecutive week, with 1.7 million new cases reported between 3 and 9 November. Retail and leisure footfall is on a slight downward trend in Germany and Italy, and to a lesser extent in France, Spain and the UK, a development that could be related to the health situation in Europe, especially in Germany.

EcoWeek 7 novembre 2021

Editorial

Deposit rate lift-off, markets and the ECB
11/07/2021 •

Markets have been pricing in an early lift-off of the ECB’s deposit rate. The ECB argues that, considering its inflation outlook, this is not warranted. This difference in view could reflect a loss of central bank credibility. More likely is that market participants and the ECB disagree on the inflation outlook. Another explanation is that investors focus on the distribution of possible inflation outcomes and are concerned about the risks of inflation surprising to the upside.

Economic Pulse

PMI: strong increase in output price inflation, weaker export outlook
11/07/2021 •

The global manufacturing PMI was up slightly in October despite a weakening in the US and a small decline in the eurozone. There was a noticeable decline in France whereas Italy moved higher. Japan also saw an improvement. The levels in the advanced economies remain very high whereas in the emerging countries the picture is more mixed. Worth noting is the improvement in India and the jump in Indonesia and Vietnam.

Economic Pulse

Worrying developments

11/07/2021 •

The German economy further recovered in the third quarter, as GDP strengthened by 1.8% from the preceding quarter. Growth is mainly driven by higher consumer spending related to improved labour market conditions and a further relaxation of sanitary measures. However, our Pulse chart indicates that this favourable environment is unlikely to last: the situation in the three months to October (blue area) worsened compared to the situation in the preceding three-month period (area within the broken line).

Economic Pulse

Solid figures for the third quarter
11/07/2021 • By Hélène BAUDCHON

The initial estimate of French growth in Q3 2021 surprised on the upside, with a rebound in GDP of 3% q/q, well ahead of our forecast (2.2%) as well as those of Banque de France (2.3%) and INSEE (2.7%). Furthermore, Q2 growth has been revised upwards by 0.2 points to 1.3%. One quarter ahead of schedule, France’s GDP is therefore almost back to its pre-crisis level of Q4 2019. Besides, the growth carry-over reaches 6.6%. Hence, on average over 2021, growth will be much stronger than expected (government forecast of 6.25% and our forecast of 6.3%).

Economic Pulse

Number of new Covid-19 cases sharply rising in Europe
11/07/2021 • By Tarik RHARRAB

Having been in decline for around two months, the number of Covid-19 cases is rising worldwide. Three million new cases were reported between 27 October and 2 November, up 3.2% relative to the previous week. This concerns all parts of the world an in particular Europe, where the number of cases is climbing fast (+11.8%) (Chart 1): 1.54 million new cases out of a global total of 3 million have been recorded in Europe (51% of the total). The biggest number of new cases has been in Russia (281,042), while the UK has reported a total of 275,078, Ukraine 153,353, Germany 134,891 and Romania 73,463.

EcoWeek 28 octobre 2021

Editorial

Weaker US household confidence, a source of concern?
10/28/2021 •

A recent academic paper argues that, considering the significant recent decline of consumer expectations, the US could be entering recession. However, Covid-19 complicates the interpretation of household confidence data. Fluctuations in infections play a role and the recovery from last year’s recession as well as other factors have caused a jump in inflation. Given the historically high quits rate, the weakening in household sentiment probably reflects mounting concern about the impact of inflation on spending power. Something similar has been observed in the latest consumer confidence data for France.

Economic Pulse

Uncertainty: ongoing divergence reflects role of supply bottlenecks
10/28/2021 •

Our different uncertainty gauges are complementary, in terms of scope and methodology. Based on the latest readings, the ongoing divergence reflects the role of supply bottlenecks that confront companies with uncertainty in terms of delivery time, future production and the possibility to fill vacancies. Starting top left and continuing clockwise, economic policy uncertainty based on media coverage continues its decline. It is now back at a level last seen in 2018. 

Economic Pulse

International trade: slight respite in a stretched environment
10/28/2021 • By Guillaume DERRIEN

Although tensions in world trade remain fierce, there were some signs of easing in October. The Baltic Dry Index (BDI), which reflects the cost of maritime transport for dry bulk goods, declined by around 30% after peaking in the first week of October. Nonetheless, the rise in costs since the start of the year remains impressive, nearly a tripling. Looking more closely at October’s figures, we can see that the decline in the BDI was limited solely to very high tonnage container ships, while freight prices continued to rise for smaller vessels. 

EcoWeek 25 octobre 2021

Editorial

Reforming EU economic governance: the start of a marathon 
10/24/2021 •

The European Commission has relaunched a comprehensive review of the economic governance framework of the European Union. This initiative is necessary considering the impact of the Covid-19 pandemic on public finances as well as the investment needs in the context of the green and digital transformation. The review process comes with several challenges: an agenda which is particularly broad, the inclusive nature of the debate, involving many stakeholders and, as far as fiscal governance is concerned, the necessity for EU member states to strike a balance between committing to policy discipline whilst keeping national fiscal policy leeway

Economic Pulse

China: Poor economic growth figures in Q3 2021 
10/24/2021 • By Christine PELTIER

Chinese real GDP growth slowed to 4.9% year-on-year (y/y) in Q3 2021 from 7.9% in Q2 2021.  In the services sector, growth slowed sharply in August (+4.8% y/y), due notably to the reintroduction of lockdown measures to counter a new surge in Covid-19 cases. Although services growth rebounded in September (+5.2%), it is still sluggish. Tighter regulations in a number of segments, including online services, tutoring and video gaming, have constrained activity. The services sector has also been hit by the downturn in the real estate market due to a severe tightening of prudential regulations and credit conditions in the sector. In Q3 2021, house sales contracted while property developers have encountered increasing financing and cash-flow problems

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, 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.