The Coronavirus epidemic is also sweeping Denmark, which has now introduced relatively strict lockdown measures. With its very open economy (exports account for more than 50% of GDP), GDP growth will contract in 2020. To mitigate the shock, the government has launched major fiscal support measures, comprised notably of paying compensation for all or part of wages for a 3-month period. The central bank is ensuring DKK and EUR liquidity, after signing a swap arrangement with the ECB.
Economic activity will plummet under the impact of the Covid-19 pandemic, but not only via the export channel. The recession could become more virulent if household consumption and production channels were also to freeze up. In addition to the ECB’s monetary policy support, the government will also try to use fiscal policy to buffer the shock and limit the decline in employment.
Looking at the economic data for the euro area that has emerged recently, the conclusion is clear: we are seeing an unprecedented economic contraction in the service sector. The average eurozone service sector PMI plummeted in Q1 2020, well below its long-term average...
Following the example of the ECB for the significant institutions[1], the Bank of Italy has decided to recommend to banks under its direct supervision (the less significant institutions) not to distribute or commit distributing dividends at least until 1 October 2020[2]. Moreover, share buy-backs will have to be restricted and less significant institutions in Italy will have to adopt "prudent and farsighted" variable-remuneration policies. The five largest Italian banking groups, which account for almost half of the total assets of the domestic banking system, are thus likely to mobilize (in addition to the benefits that were not intended to be distributed) EUR 4.8 billion of additional common equity Tier 1 in 2019[3], representing 4.1% of its current outstanding amount (EUR 116
Judging by the indicators on our radar screen, the picture for the French economy is deteriorating, albeit, it should be remembered, from a relatively strong position...
In 2019, according to the preliminary INSEE estimate, France’s fiscal deficit came to 3% of GDP, which is good news, if only slightly better than the government’s target of 3.1% of GDP. The deficit widened by 0.7 points compared to 2018, the first increase since 2009. Attributable to the one-off fiscal cost of the transformation of the CICE tax credit into reduced employer contributions, the swelling deficit was expected to be only temporary, and would be followed by a substantial improvement in 2020. In the draft budget bill for the current year, the government was forecasting a deficit of 2.2% of GDP. Yet the Covid-19 pandemic has radically changed the situation. In the amended draft budget bill for 2020, presented on 18 March, the government is now forecasting a deficit of 3
Purchasing Managers Index (PMI) for March showed a significant deterioration in the Eurozone. Having not really shown up in the data before, the shock from Covid-19 would be the biggest since the 2008-2009 crisis. Many countries will be affected and economic policy will need to continue to play its full role in ensuring that we come out of the crisis on a solid footing.
In the latest months, economic activity was virtually stagnant. As can be seen in the chart, the export-oriented manufacturing sector was operating well below potential, whereas activity in the more on the domestic market oriented sectors such as construction and services remained buoyant. The outbreak of the Covid19 in Germany has changed the picture completely...
The ECB announced a new series of measures to counter the economic consequences of the Coronavirus pandemic. The Governing Council is seeking to maximize the impact of its actions by opting for targeted measures. It is paying special attention to the risk that monetary and financial conditions could tighten. Despite communication missteps, the ECB has expressed its determination and has called on governments to take concerted action.
An example of successful economic transition, Poland still enjoys fairly favourable prospects despite the expected slowing of growth against a background of less favourable international conditions. Over the medium to long term, there are factors that will weigh on potential growth and weaken a Polish economic model based on competitiveness and low labour costs. The first section of this article analyses the impact of institutions on productivity, which is a major determinant of the differences in standard of living between countries, as illustrated through the example of Poland. The second section examines the question of Poland’s estimated medium-term potential growth, after an analysis of its pathway since the 1990s.
The weight of the tertiary sector in the Spanish economy has grown steadily over the years, and this growth has accelerated in the last five years. Value added for the services sector (volume terms) has increased by 16.2% since Q3 2008, the previous peak achieved before the financial crisis. Conversely, the industrial sector remains 6.9% below its 2008 level. This structural transformation could reflect the growing role of new technologies and the digital economy as engines of growth for both consumption and investment choices. This trend is reflected not only in Spanish domestic demand, but also in the country’s international trade. Indeed, Spanish exports of services have risen 46 % (volume terms) since the autumn of 2008.
Employment and unemployment figures for Q4 2019 and the year as a whole in France were surprisingly strong, especially since growth weakened markedly, despite showing some resilience. The preliminary Q4 2019 growth estimate fell well short of expectations (GDP contraction of 0.1% q/q), but private payroll employment (up 0.2% q/q, preliminary estimate) and the unemployment rate (-0.4 points to 8.1%) were far better than expected. Growth averaged 1.3% over 2019 as a whole – nearly a half-point lower than in 2018. Conversely, private payroll employment barely lost any traction (up 1.1% after a 1.2% rise), and the drop in the unemployment rate was slightly larger in 2019 than it was in 2018 (-0.6 points to 8.4%, after a 0.4-point decline in 2018)
Economic activity was solid in Q4 in Spain last year. Growth in Spain should nonetheless continue to slow in 2020.
Tiering partially exempts excess reserves of the euro area banks from the negative deposit facility rate (-0.5%). It applies within the limit of an amount equal to six times their minimum reserves. Banks whose excess reserves do not exceed this multiple may, in addition, convert all or part of their deposit facility into excess reserves. The amount of the deposit facility of the 19 banking systems in the euro zone decreased by 59% between September and December 2019, falling back to its spring 2016 level. We estimate that tiering reduces the cost of negative interests by EUR 4.0 bn in the euro area and EUR 825 m in France[1]. The annual cost of negative interest amounts to EUR 4.7 bn for the euro area banks, including EUR 3.5 bn attributable only to excess reserves and EUR 1
Credit impulse in the euro zone stabilised in December 2019 (up 0.3%, as in November) against a background of a slight slowing of real GDP growth in the fourth quarter (1.0% from 1.2% in the third quarter). Outstanding bank lending to the private sector maintained its pace of growth in December (up 3.7% year-on-year). For the second month in a row, growth in lending to NFCs was less than that in lending to consumers. The slowdown in growth in lending to NFCs (where the year-on-year figure fell from 3.8% in October to 3.2% in December) was due mainly to lower investment spending (in France, Germany and most particularly Spain). This was in part offset by strong growth in consumer loans (from 3.5% to 3.7%)
The economic indicators on our radar screen portray a French economy that is still looking rather strong and upbeat. In the recent period, most indicators are higher than their long-term and short-term averages, i.e. the momentum is slightly positive. Specifically, the signals from survey data (available through January) are more positive than hard data concerning activity (which are not as up to date, with November and December being the most recent months). A priori this augurs well for growth in early 2020...
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
Will the year 2020 be marked by a rebound in eurozone economic growth? More favourable signs seem to be emerging, although they have yet to show up clearly in hard data. In any case, eurozone growth is bound to remain low. In this environment, inflationary pressures will probably fall short of the central bank’s target. Beyond that, the ECB Governing Council will be tackling new issues in 2020. Christine Lagarde announced a strategic review for the Frankfurt-based monetary institution. On the agenda: cryptocurrencies, climate change, technological progress, and inequalities.
Economic activity increased by only 0.6% in 2019, as the decline in manufacturing production was offset by increased activity in more domestically oriented sectors. In the coming two years, the economy will be supported by more accommodative fiscal policies. From Q2 2020, the pick-up in exports related to the partial lifting of uncertainties may more than compensate for easing consumption growth. Nevertheless, GDP growth is expected to remain below potential. The possible departure of the SPD from the ruling coalition forms a major political risk.
The year 2020 is expected to follow along similar lines as in 2019, a mixed performance marked by slow but resilient growth bolstered by the strength of final domestic demand. The economy is expected to keep running at about the same rate (1.1% after 1.3%). The rebound in household consumption should gather steam, fuelled by major purchasing power gains. The dynamic pace of investment, which looks hard to sustain, is expected to slow, while sluggish global demand will continue to curb exports. The intensity of several external downside risks declined in Q1 2020, including trade tensions, Brexit, and fears of a recession in the US and Germany
Italy continues to record a cycle of subdued activity, with the annual growth rate of real GDP slightly above zero, as a result of the feeble growth in services, the modest recovery in construction and the persisting contraction in the industrial sector. From Q1 2018 to Q3 2019, manufacturing production has fallen by more than 3%, with the strongest declines in the sector of means of transport, in that of metal products and in that of textile, clothes and leather items. Together with the short term slow down, Italy is going to face long term challenges due to the ageing population and its impact on the labour force and the pension spending.
Although Spanish growth remains solid, it is by no means sheltered from the European slowdown. In 2020, growth is expected to continue slowing to about 1.7%, after reaching 2% in 2019. The slowdown is also beginning to have an impact on the labour market. From a political perspective, Pedro Sanchez was the winner of November’s legislative election, although he failed to strengthen the Socialist party’s position. He was invested as a prime minister in early January by Parliament and he will lead a minority coalition government alongside the extreme left Podemos. The coalition will depend on the implicit support of some regional and nationalist parties, notably the pro-independence Catalan ERC party.
Economic activity may have substantially weakened in Q4, due to the slowdown in world trade and the nitrogen and PFAS problems. Fiscal policy should become very accommodative, although it remains doubtful if the government will succeed in implementing all the spending plans. Growth is likely to slow this year, before picking up in 2021 on the back of a stronger global economy. However, climate challenges and labour shortages continue to weigh on activity in particular in construction. Moreover, pensioners may face severe cuts because of the deteriorated financial situation of the pension funds.
Belgian GDP growth is expected to drop to 0.8% in 2020, down from 1.3% in 2019. Domestic demand remains the key engine of growth, partially offset by a negative contribution from net trade. Private consumption growth is reduced as employment increases now at a slower pace, after 4 strong years. Investment growth is up, spurred on by public expenditures. The lack of a majority-backed government contributed to renewed fiscal slippage, which remains a key risk for the Belgian economy.
Supported by catching-up effects, the Greek economy managed to accelerate slightly despite a slowing European environment. Confidence indices have improved strongly and the Greek state has successfully returned to the capital markets. The new centre-right government is seeking to cut taxes on labour and capital without sacrificing fiscal discipline. The recovery will be a long process, but it is on track.
