Spain, Greece, Italy and Portugal have been hit hard economically by the Covid-19 epidemic. These countries have also suffered for many years from sluggish potential growth, which is among the lowest in Europe. The main obstacles are more or less the same: a low level of investment and productivity, and a slowing - or even declining - demographics which weigh on the workforce. How have these different factors evolved? What may be the impact of the current economic crisis on structural growth? Which levers to operate?
With only a few weeks left before the end of the transition period that has extended the United Kingdom’s de facto membership of the European Union, considerable uncertainty remains about Brexit and its consequences. Whatever the outcome of the current negotiations on a free trade agreement, it is clear that this will be a hard Brexit. From this observation, a number of important questions emerge. What will be the consequences of the UK’s withdrawal from both the EU’s single market and customs union? What effect will Brexit have on the UK economy, and will it differ across sectors? How will Brexit influence future economic policy in the UK?
According to the first estimate from the Office for National Statistics (ONS), United Kingdom GDP rose by 15.5% in the third quarter, in line with consensus estimates, as restriction measures were progressively lifted following the first lockdown. Despite this record increase, the level of GDP was still nearly 10% below where it was at the end of 2019. While Spain is in a similar position, the GDPs of the United States, France, Germany and Italy have all returned to about 5% below where they were back then...
The marked improvement in the barometer shows that the rebound in economic activity was encouraging up to mid-October, before the epidemic picked up speed again. As in other countries, the pick-up in activity was concentrated in the industrial sector. The manufacturing PMI reached 53.8 in October (its highest level since March 2018), driven by a marked improvement in the new export orders component (+4.5 points to 55.8). Conversely, the services sector PMI fell by 2.1 points to 46.7...
The barometer provides a perfect illustration of the diverging trend observed between manufacturing and services activities. On average over the past three months, the manufacturing purchasing managers’ index (PMI) index has moved above its long-term average, while the indicator for services remains well below this trend...
The Covid-19 pandemic has caused a decline in inflation and, in most euro area countries, an increase in the inflation dispersion between sectors. It will take considerable time until activity has been restored sufficiently to generate labour market bottlenecks, which –in the absence of exogenous shocks- are a necessary condition to see a broad-based and lasting increase in inflation. This suggests that for the coming years, we should expect inflation to fluctuate around a slowly rising trend. In the course of 2021, the unleashing of pent-up demand –under the assumption that a vaccine is sufficiently widely deployed- could cause a temporary pick-up in inflation. In this respect, a decline in the price elasticity of demand will play a key role.
While Italy's real GDP fell by 12.8% q/q in the second quarter of 2020 (after -5.5% in the first quarter), the non-performing loan (NPL) ratios of sectors of activity that have been subject to administrative closures, in particular, continued to decrease. Surprising as it may seem, this development can be explained. On the one hand, public guarantees on new loans have contributed to increase the outstanding amount of "healthy" loans to these sectors[1], diluting NPL ratios. On the other hand, sales of NPLs continued in 2020 (albeit at a slower pace than in 2019), which reduced the outstanding amount of NPLs and contributed to the cleaning up of bank balance sheets
The Eurozone’s macroeconomic environment remains highly uncertain in the midst of a resurgence of the pandemic in most of the member states. New health restrictions, though generally less severe than in the first wave of the Covid-19 pandemic, constitute another drag on the region’s economic recovery and catching-up dynamics...
According to the INSEE flash estimate, private payroll employment in France rebounded by 1.8% q/q in Q3 2020, after dropping 2.5% in Q1 and 0.8% in Q2. France has recouped a little more than half of the jobs losses in H1 (345,000 jobs out of a total of 650,000). Employment is now 1.5% below its pre-crisis level, compared to 4% for GDP. Job variations have been remarkably smoother relatively to GDP, both on the downside and on the upside. This reflects the massive use of job-retention schemes enabled by the government’s decision to strengthen the system as part of emergency measures taken last spring to cushion the shock of lockdown. Employment is expected to decline again in Q4, in the wake of the economic activity relapse under the impact of the new lockdown
In the draft 2021 budget, the French government predicts budget deficits of 10.2% of GDP in 2020 followed by 6.7% in 2021 (from a deficit of 3% in 2019). The government debt to GDP ratio is expected to rise by nearly 20 points, to 117.5%, in 2020, before dropping slightly, to 116.2%, in 2021. These unusual figures bear the traces of the massive recessionary shock in the first half of 2020 caused by the Covid-19 pandemic, and the similarly massive fiscal response as the government has sought both to lessen the impact of the crisis and to support the recovery. And the numbers are still climbing, as a result of the second wave of the epidemic this autumn. When it comes to supporting the recovery, the France Relance plan makes EUR100 billion available over the next two years
The Q3 2020 rebound in the Eurozone GDP growth was stronger than expected: 12.7% q/q, compared to expectations of 10.5%. Of the region’s four biggest economies, France reported the strongest rebound followed by Spain, Italy and Germany. This rebound only partially erased the massive negative shock earlier this year. In Germany, France and Italy, GDP was still about 4% below the Q4 2019 level, while Spanish was still down by 9%. All components of demand contributed to French GDP growth. Sector differences reveal the heterogeneous impact of the shock. In all four countries, the rebound was largely mechanical, but other factors also came into play. Emergency measures to offset the impact of the lockdown last spring constituted a strong support
Despite a significant and higher than expected rebound in the third quarter (+12.7% q/q according to Eurostat, from -11.8% in Q2), the y/y contraction in GDP remains significant albeit lower (-4.3%, from -14.8% in Q2). In contrast to prevailing macroeconomic trends, credit impulse (defined as the annual change of the annual growth rate of bank loans) to the private sector increased very slightly in September 2020, following a decline from 1.9% in May 2020 to 0.8% in August 2020...
The main economic news is the publication by INSEE, on Friday 30 October, of its preliminary estimate for French GDP growth in Q3. The surprise has been on the upside, as the figure of 18.2% q/q growth is higher than our forecast of a 16% q/q gain. The rebound has been as spectacular as the collapse that preceded it (-5.9% q/q in Q1 and -13.7% q/q in Q2), but did not make up all of the ground lost: GDP is still 4% lower than its level at end-2019. All components of GDP showed better than expected improvements. The contribution from changes in inventories, which was more negative than expected, took a little of the shine off the recovery...
According to the Pulse, activity in Germany recovered strongly in the past three months. The blue area of the chart spread out further compared to three months ago (demarcated by the dotted line). Activity in the manufacturing sector strengthened, on the back of well-filled order books. Nevertheless, in August (last observation), activity remained around 10% from levels seen a year ago. In particular, production of investment goods remained weak as low utilisation ratios and high uncertainty weighed on capital expenditure. In the car industry, production was even almost 30% lower from last year...
The Covid-19 health crisis is an historic shock for the eurozone economy. The economic policy response has been substantial and rapid, and this is particularly true for the monetary policy adopted by the European Central Bank (ECB). The ECB has notably introduced an emergency asset purchasing programme, the Pandemic Emergency Purchase Programme, or PEPP. In June, its envelope has been increased to the current level of EUR 1,350 billion. Thus, since March 2020, monetary policy has had a significant effect on long-term interest rates, improving financing conditions for eurozone member states and also for the private sector
Has household consumption, the driving force behind French growth, stalled? Or was it actually in the process of rebounding? In 2019, household consumption rose at an average annual rate of 1.5% in real terms, which is considered to be a disappointing performance. But “disappointing” on what grounds and from which standpoint? Are we really dealing with a feeble rebound? These are difficult questions to answer, since everything depends on the perspective we take and the determinants we look at. In this article, we will try to put household consumption into context, and provide answers and explanations for the above issues. In a descriptive analysis in part one, we examine household consumption’s role as a growth engine, its momentum and composition. The second part is explanatory
Most economic activity indicators have continued to improve recently. That said, the idea of a V-shaped recovery is already forgotten. While the economy is still far from its pre-crisis level, the recovery seems to be running out of steam...
The economic recovery slowed down in September. That said, and as clearly shown on our barometer, the 3-month trend has continued to improve for most indicators – a logical process with the catching-up effect during the summer period...
After keeping the epidemic at bay for most of the summer, Italy is now facing a strong resurgence in the number of Covid-19 cases. Last Tuesday (October 13), the government decided to tighten health restrictions, including the closure of restaurants, cafes, and nightclubs at midnight...
New mortgage lending fell by 33% year-on-year in the second quarter of 2020, the steepest decline since 2008. British lenders have been more cautious since the beginning of the year. This is evidenced by the decrease of 4.0 percentage points (pp) in the share of loans with a loan to value (LTV) figure in excess of 75%; the bulk of this concerns loans with an LTV between 75% and 90% (-3.2 pp). To tackle this trend, and with Nationwide’s property price index continuing to rise, the UK government plans to boost home ownership by encouraging loans with an LTV of up to 95%
Although the United Kingdom officially left the European Union on 31 January 2020, trade relations between the two trading blocs remain intact during a transition period. Barring a spectacular turn of events, this period will end on 31 December. Whatever happens, the UK is heading towards an exit from both the EU’s single market and customs union. This means that it will be a “hard” Brexit. And it could be the hardest possible if the two parties failed to agree on a free trade agreement. In fact, UK and EU negotiators have just completed their ninth round of talks – the last initially planned – but there are still major divergences
The Hungarian economy was hit particularly hard by the effects of the Covid-19 pandemic in the 2nd quarter of 2020, due to the weight of exports in its GDP. The shock seems to have been absorbed relatively well, with the government and central bank focusing on supporting the labour market and introducing the necessary moratoriums on interest payments and loan repayments. The stimulus measures introduced have been constrained in particular by the need to avoid an excessive depreciation of the forint. The reduction in government debt, interrupted this year, is likely to get back on track quickly, within the framework of an unchanged strategy: maintaining a moderate corporate tax in order to continue to attract foreign investment in the manufacturing sector.
The economic position improved significantly over the last three months compared to the three months prior. The recovery in the euro zone seems to have stalled...
Even 30 years after reunification, income differences persist due to a productivity gap in the new Länder. Productivity is about 20% lower than in the rest of the country. The largest income differences are in the manufacturing sector, as headquarters and research centres remain concentrated in the West. Many young people have moved from East to West attracted by higher wages and better living standards. Between 1991 and 2016, the new Länder lost about one quarter of their working-age population. East and West have become closer demographically. Net migration is actually around zero, as income prospects in the East have improved. In addition, some regions in the West are now also experiencing a rapid ageing of their population, as has been the case in the East.
After a more vigorous than expected recovery following the end of lockdown, the trend now seems less energetic. There is still lost ground to make up and the end of the year, beset by uncertainty on the health and economic fronts, is likely to see a marked decline of growth. In our central scenario, there is no return to pre-crisis GDP level before the forecast horizon at the end of 2021. Coupled with this, deflationary pressures are building, and the strengthening of the euro intensifies this dynamic. So far the European Central Bank has been patient, but has indicated its willingness to take new measures. If the current situation persists, an extension of emergency monetary measures, in terms of both size and duration, looks likely.
