The ECB has increased its key rates by 450 basis points since July 2022. This is the sharpest tightening of monetary policy since the creation of the euro area in 1999. This tightening has been transmitted to lending rates and bank deposit rates. This is in line with the objectives of monetary policy to slow global demand and to bring back inflation to a level of 2%.
French growth surprised on the upside in Q2 2023. Corporate margins increased and their cash positions remained supportive, allowing them to continue investing despite higher interest rates. Conversely, household consumption and investment contracted, despite gross disposable income and household purchasing power positive evolutions compared to a year ago [...]
Last week, African heads of state and private sector representatives gathered in Nairobi, Kenya for the first-ever African climate summit. This meeting, organised ahead of COP 28, ended with the signing of the Nairobi Declaration, through which Africa has taken on continent-wide ambitions in the fight against climate change.
Stylised facts are recurring patterns between economic variables and between economic variables and financial markets. They are conditioned by the economic environment and shape expectations of households, companies and investors. They are also used when producing economic forecasts. In the current cycle, there is doubt whether certain stylised facts still apply. In the US, the economy is still growing despite a significant yield curve inversion and aggressive rate hikes [...]
Jerome Powell’s opening remarks at the US Federal Reserve Symposium in Jackson Hole were at the center of attention and focused on the short term and inflation. What is the main takeaway? The fight against inflation is not yet over – a message echoed and supported by Christine Lagarde in her own address.
The Caribbean has contributed little to global CO2 emission at less than 1%. Yet the region is amongst the most vulnerable to the impact of climate change. Currently, many economies’ adaptations plans suffer from financing shortfalls amidst high debt ratios, weak growth profiles and insufficient support from official creditors. New forms of financing are however offering promising solutions to help bolster the region’s climate and financial resilience.
Gabriel Boric intends to exceed the goals set up to that point, on a country level, by achieving carbon neutrality before 2050, and on an international level, by developing lithium and green hydrogen production and export capacities.
For economists and central bank watchers, the ECB conference in Sintra (Portugal) and the Federal Reserve conference in August in Jackson Hole are the highlights of the summer season. As always, the presentations and panels at the Sintra conference were very stimulating but also sobering. Disinflation is too slow, there are upside risks to inflation compared to the pre-pandemic era, policy rates will have to remain elevated and economic forecasting is more challenging than ever.
Which country is the most exposed to recession? Is it the United States or the eurozone? The first answer that comes to mind is: the eurozone. It has, indeed, “technically”, already slipped into a recession in view of the double fall in GDP in Q4 2022 and in Q1 2023. But, for now, this recession looks to be only “technical”: indeed, the contraction in GDP is small and not widespread across all growth components or among eurozone members.
What characterizes the current business cycle? Whether it is the monetary squeeze, the growth slowdown or disinflation, the word that springs to mind seems to be "slow". Moreover, the prospects for recovery, which will mark the beginning of a new cycle, promise to be characterized as slow as well.
The German economy experienced a recession during Q4 2022 and Q1 2023. Even though consumer spending has significantly contributed to this downturn, growth has been underperforming in Germany for over five years, largely driven by the underperformance of its manufacturing sector. Industry has been facing stronger constraints than elsewhere in Europe, and its size has decreased, which is a relatively new phenomenon in recent times in Germany [...]
The governor of the Bank of England announced last April a review of the British deposit guarantee scheme. A review was already under way to expedite the compensation of depositors in the event of bankruptcy.
According to the United Nations, India’s population surpassed that of China in April. This strong population growth is seen as a considerable asset for the Indian economy. However, the very high level of youth unemployment (despite robust economic growth) is a source of concern, and some fear that India’s demographic advantage may become a social risk.
On May 14th, legislative elections were held in Thailand to renew the 500 members of the House of Representatives. The "democratic" parties have presumably won more than 300 seats. The two main opposition parties, Pheu Thai and Move Forward, have won more than 290 seats. The opposition parties are discussing to recommend one nominee for the position of Prime Minister.
Earlier this week, Hungary published its GDP data for the first quarter. It fell by 0.2 % compared with the previous quarter after -0.6% in Q4 and -0.8% in Q3. This is not a major surprise given that high frequency indicators such as retail sales and industrial production were already pointing to a weakening in economic activity. Elsewhere, in the region, GDP growth was also soft though we observe a better performance in Czech Republic Romania and Poland [...]
Central banks' decisions influence markets, households and businesses. It is therefore necessary to understand how they will react to incoming data. The Federal Reserve and the ECB have similar reaction functions but offer different guidance because of the differences in terms of economic environment, particularly with respect to real interest rates.
Growth in the French economy recovered slightly in Q1 2023, rising to 0.2% q/q following the relative stagnation seen during the second half of 2022. Despite the strengths driving this recovery, the French economy is also exposed to some weaknesses. An analysis across three sectors (transport equipment (including cars), food and housing), gives us an insight into these conflicting forces which imply that while growth is still positive, it can be very different across sectors.
The current inflationary situation is unprecedented in many respects. Indeed, some of its strength lies in the ability of firms to pass on the rise in their production costs in their selling prices. This is known as pricing power. And it allows companies to preserve their margins in a difficult environment.
Emerging markets exports contracted sharply in late 2022-early 2023, particularly in Asia due to the turnaround in the global electronic cycle. But US/China structural decoupling is probably already at work.
The candidate of the outgoing majority, Bola Tinubu, won a close victory in the presidential elections of February 25. Coming challenges are significant: revive the first African economic power and consolidate macroeconomic stability, which has deteriorated dangerously despite high global oil prices.
The monetary tightening by the Federal Reserve and the ECB has led to a decline of the business climate in the manufacturing sector. The services sector has been resilient thus far. This may reflect the diversity of the subsectors within services, with some being highly correlated with the manufacturing sector and others far less so. Services also tend to be less sensitive to interest rates, which implies a more limited impact of central bank rate hikes [...]
In Egypt, all macroeconomic indicators are deteriorating. In 2023, economic growth should slow down and CPI inflation reach a high level. Contrary to the other emerging economies, inflation is expected to accelerate in 2023 -notably given the depreciation of the pound- by around 50% for a year.
The currently high level of inflation remains the biggest threat to the global economy, according to the OECD. Granted, we already seem to have passed the inflation peak several months ago, notably in the United States and the Eurozone. But so far inflation has not fallen much. Yet several factors are helping to reduce inflationary pressures [...]
Business insolvencies started to increase again in Western Europe during 2022. In the United Kingdom and Sweden, where growth has deteriorated since the start of 2022, these insolvencies were even higher than their pre-Covid level, with a more significant increase in retail and wholesale trade. In the Eurozone, insolvencies are still below pre-Covid levels, but the current tightening of credit conditions raises the risk that they will reach those levels during 2023 [...]
Coping with uncertainty is at the heart of every investment decision. How investors deal with uncertainty is influenced by the interplay between their conviction level when forming views, the nature of the uncertainty and their decision horizon. It is highly likely that elevated uncertainty shortens the investment horizon: when investors don’t have strong opinions, they will probably adopt a short-term approach (or simply do nothing). Even those with strong views about the medium run -e.g [...]
