Denmark’s small open economy is bound to be hit by the economic slowdown affecting its main trading partners in the quarters ahead. Household consumption will remain the main growth engine thanks to job creations, wage growth and mild inflation. With consumer prices up only 0.7% y/y in May, inflation should remain mild. The Danish economy is also expected to benefit from an accommodating monetary policy in the quarters ahead, although this will depend on the policy stance adopted by the European Central Bank (ECB).
The slowdown since the start of last year is of a different nature in France, where it has manifested itself in manufacturing and services, compared to Germany, where it is very much concentrated in the manufacturing sector. Recent data show a somewhat improving picture in France whereas in Germany signs of stabilisation remain tentative. Under the hypothesis that concerns about trade relations (US-China, US-Europe) and Brexit will not disappear anytime soon, it seems difficult to expect a significant improvement in the near term. France could however surprise positively on the back of the measures to support the purchasing power of households.
Today’s Pulse for Germany suggests that the economy is doing even less well than the already diminishing expectations. But on closer inspection, it does not look half so bad.
The INSEE has just developed a new graphical tool, a tracer of business confidence, that helps position the French economy within its cycle and track economic trends. The recent past is characterized by changes in the economic situation of limited magnitude but quickly evolving: the cyclical upturn in 2017 was followed by a slowdown as soon as 2018 before going back into the expansion zone since the start of 2019 but timidly so (close to the frontier with the “slowdown” quadrant). What stands out from this chart is therefore more the hesitant, “caught in-between”, feature of the current economic situation in France rather than its favorable (and resilient) aspect
Despite a quite good 1st quarter 2019 in terms of economic growth (+0.4% q/q), the latest economic indicators sent mixed signals. Worries about the Purchasing Managers’ Index (PMI) in the manufacturing sector remain despite its stabilization, at a low level, in June (47.8). In the services sector, the PMI seems to be unaffected by the manufacturing woes.
From 2008 to 2013, the eurozone experienced a sharp decline in investment. Despite a belated turnaround in 2014, total investment is still holding below its pre-crisis level. There are wide disparities between countries. After the crisis, the investment rate dropped off sharply in Spain, for example, but rose in France. The share of investment allocated to intangible assets, notably research and development, has increased to the detriment of tangible assets.
According to Mario Draghi, a key question is how long the rest of the economy can remain insulated from the weakness in the manufacturing sector. Historically, the purchasing manager indices for manufacturing and services have been highly correlated, which can be partly attributed to the important role of services in the value chain of the manufacturing sector. The future resilience of the services sector in the eurozone will very much depend on what happens in Germany where the gap between the PMIs of the two sectors is abnormally high.
Our pulse indicators are sending a clear positive signal. Only the composite PMI surprised on the downside (51.2) and is below trend.
The Bank of England's (BoE) aggregate balance sheet statistics for the Monetary and Financial Institutions (MFIs) provide a macroeconomic picture of the UK banking system. They illustrate the contraction of bank balance sheets until December 2015 (-19% compared to January 2010). This was mainly the result of the decline in outstanding loans to the resident non-financial private sector, whose debt was returning to more sustainable levels. Non-resident claims and interbank transactions also contributed to the decline in bank balance sheets
The ECB has eased policy slightly, by extending its forward guidance on policy rates. On the other hand, the conditions on TLTRO III are slightly less generous than those on the previous operation. Importantly, a discussion has started within the Governing Council on how to react should the environment worsen. Understandably, given the eurozone fundamentals, the ECB is not yet in a hurry to react to the prolonged uncertainties. This is a matter of keeping its powder dry
What do the results of the European elections tell us? Does Prime Minister May’s resignation change things?Can the Withdrawal Agreement still be saved? Is there still a risk of a no-deal Brexit? Are we heading towards early elections? How is the UK economy holding up?
After strengthening in February, credit impulse in the eurozone was relatively stable in March 2019 for households, but weakened slightly for non-financial companies. Demand for credit is expected to rise in the second quarter of 2019 across all loan categories. Although banks are planning to loosen conditions for consumer loans, they intend to tighten them slightly for home loans and business loans.
Survey data released this week provide mixed signals with an improvement of consumer confidence, a weakening of the ifo business climate index in Germany and a stabilisation of the INSEE indicator in France. The IHS Markit PMIs show a stabilisation in recent months in manufacturing, at a subdued to low level, and in services, at a more satisfactory level. Several drivers of domestic demand remain supportive. Nevertheless, unease remains, mainly for reasons on which the eurozone has no control and where the risk of further tariff increases is top of the list.
An increasing share of the outstanding amount of loans granted to Portuguese households for house purchase consists of loans with an original maturity over 30 years. Between 2009 Q1 and 2018 Q4, the proportion of loans with the longest original maturities have increased from 51% to 71% of the total outstanding amount. The change has been caused by the outstanding amount of loans over 30 years remaining stable, while the outstanding amount of shorter-term loans has fallen by 45%. Hence, the average maturity of new loans for house purchase has increased from 30.8 years to 33.3 years between 2014 and 2017 according to the Bank of Portugal’s latest figures1
For most observers, the European elections are seen above all as a kind of political health report that is conducted simultaneously in all of the EU member countries. In this article, we will describe the main tendencies highlighted in the most recent polls and we will explore some of the possible consequences of these elections on the balance of power in Brussels and on the events that will follow thereafter.
Over the past few months, the news flow for the German economy has definitely improved. Manufacturing output strengthened for the second consecutive month, although remaining well below last year’s level. Also industrial orders rose slightly, although falling short of market expectations. Even though consumer confidence slightly weakened April, it remained at a very high level.
Since Q3 2018, private payrolls gains have been on an upward trend (+31k in Q3 2018, +54k 2018 in Q4, +66k in Q1 2019), contrasting favorably with the stability of GDP growth over the same period. Nearly 900,000 private payrolls were created on a net basis since the 2013 trough. The prospects for 2019 are encouraging judging by the latest Pole emploi study on manpower requirements, which reports another sharp rise in staffing plans of 15% after an impressive gain of 19% in 2018. These plans represent 2.69 millions of potential hiring. Their number is up in every sector and in a particularly dynamic way in the construction, industry and business services sectors. The large increase in recruitment projects on open-ended contracts (+24%) is also noteworthy (+8% for fixed-term contracts)
In 2019, French households are expected to benefit from major purchasing power gains, which we forecast at roughly 2.5%, the biggest increase since 2007. Several factors will contribute to this big gain. Tax cuts will be the most visible source, but measures to support earned income and social benefits will also play a key role. Milder expected inflation will also help, but this factor could be reversed, especially if the current upturn in oil prices continues.
In the European Union, CO2 emissions from fossil fuel combustion declined 2.5% in 2018 compared to the year before. Considering that GDP grew, this implies a reduction in carbon intensity, thereby continuing a long-term trend. The developments in individual countries vary and quite a number of countries have seen an increase in emissions. Likewise, the differences are considerable concerning the emissions per capita depending on the level of economic development, although this is just one factor amongst many which influence the emission intensity.
Most leading economic indicators are in line, or even above, expectations. Activity in the manufacturing sector remains subdued, the Purchasing Managers Index (PMI) reaching only 47.9 in April. This poor performance is partially offset by the resilience of the PMI Services Index which is below its long-term average but still well above the 50 threshold (52.8 in April).
According to the first INSEE’s estimate, real GDP growth remained stable at 0.3% q/q in Q1 2019. This figure is in line with our expectations but it paints a mixed picture, an even more mixed one than during the two previous quarters.
The United Kingdom has had positive trade balances with the rest of the world since 1966 and the European Union (EU) since 2005. The financial services sector is a major contributor. As far back as the Office of National Statistics (1966) statistics of foreign trade in financial services show, the sector has always had a trade surplus. The same has been true for the EU since 1999, for which this surplus even increased fivefold until 2011 (GBP 21.5 bn). The decline observed between 2012 and 2014 was almost erased between 2015 and 2018 (GBP 20.4 bn). The UK financial services sector has a surplus vis-à-vis each of the major EU economies, starting with France, the EU market with the largest surplus in the EU since 2014 (GBP 4.5 bn in 2018)
The General Court of the European Union has annulled the European Commission’s decision that the support measures granted to Banca Tercas by the Italian deposit guarantee fund (FITD) constituted State aid. The General Court found that the European Commission did not have sufficient evidence to conclude that the measures in support of Banca Tercas entailed the use of State resources and were imputable to the State. The cost of the support measures was estimated to be lower than the cost of using the deposit guarantee scheme if Banca Tercas had been placed under compulsory liquidation. The measures, adopted voluntarily by a consortium of banks in support of one of its members, was therefore intended to protect their private interests
The economic convergence of member states lies at the heart of thjavascript:void('Automatique')e initial project to create the eurozone, but it has followed a jagged path over the past twenty years. Convergence is a multifaceted concept that covers not only the criteria stipulated in the Maastricht Treaty but also growth dynamics and income dispersion. In the period before the Great Financial Crisis, nominal convergence was relatively complete, but progress towards real convergence was much more mixed. There are several major obstacles to a sustainable convergence within the European Monetary Union, including the lack of eurozone’s optimality, possibility of currency devaluations and macroeconomic stabilisation mechanisms.
Shareholders in Norddeutsche Landesbank (NordLB) and the German Savings Banks Association (DSGV) have submitted a EUR 3.6 bn restructuring proposal for NordLB to the European authorities for approval. It seems possible that the European Commission will interpret the plan as state aid, given that it draws solely on public resources. If it is judged not compatible with the rules of the internal market, the plan could be rejected, opening the way to NordLB being sold (possibly through a privatisation) or put in resolution