Based in Paris, BNP Paribas' Economic Research Department is composed of economists and statisticians:
The Economic Research department’s mission is to cater to the economic research needs of the clients, business lines and functions of BNP Paribas. Our team of economists and statisticians covers a large number of advanced, developing and emerging countries, the real economy, financial markets and banking. As we foster the sharing of our research output with anyone who is interested in the economic situation or who needs insight into specific economic issues, this website presents our analysis, videos and podcasts.
+33(0)1 42 98 56 54 laurent.quignon@bnpparibas.com
In this special edition of Economic Research devoted to interest rate cuts, we introduce you to Isabelle Mateos y Lago, who succeeds William De Vijlder as Chief Economist of the BNP Paribas Group and Director of the Economic Research department. The Fed and the ECB are cutting rates. How much of a good sign is this? This is the subject we then tackle with Hélène Baudchon, before discussing the effects of the rate cuts on European banks with Laurent Quignon. Finally, we end with Christine Peltier analysing the effects of the Chinese slowdown on emerging countries.
After a long, unfavourable period of low rates lasting almost six years, European banks have seen their interest margins and profitability improve overall with the rise in ECB rates in 2022 and 2023. As we now enter a period of falling rates, Laurent Quignon talks to us about their effects on the interest margins of European banks.
After becoming positive again in August 2024, the private sector credit impulse in the Eurozone continued to recover in September, hitting its highest level in nearly two years (November 2022). Among other factors, it contributed to the pleasant surprise in terms of the development of Eurozone GDP in the third quarter (+0.4% q/q after +0.3% in the first and +0.2% in the second). Credit impulse to non-financial corporations has recovered more quickly since dipping below credit impulse to households in autumn 2023, when the restrictive effects of monetary policy peaked. The impulse of lending to households remained slightly negative in September.
Speaking at a joint press conference in Germany on Tuesday, 28 May 2024, the French President and German Chancellor expressed their desire to create a “European savings product” to “bolster Europe’s competitiveness and growth”. This political will follows on from the Letta[1] and Noyer[2] reports and statements made by the French Minister of the Economy. It’s a new approach to getting Capital Markets Union back on the rails.
In line with previous months, the recovery in the private sector credit impulse continued in the first quarter of 2024, after the dip seen in the third quarter of 2023. This said, the recovery was slightly slower than at the end of 2023 and the overall trend is still negative. Developments in lending to business are traditionally more volatile over the cycle than those in lending to households. Recent ones have not deviated from this rule: in the autumn of 2023, at a time when the effects of the tightening of monetary policy were at their strongest, the impulse of lending to households did not fall as far, in absolute terms, as that for lending to businesses. Conversely, its recovery since then has been less vigorous
Monetary anchoring is one of the main arguments put forward by central banks to justify an eponymous digital currency. According to supporters of the digital euro, a reduction in the use of paper money or even its disappearance would be the natural next step and result in the creation of a digital form of central bank currency that would be the only guaranteed way of keeping the currency anchored in the digital era. Nothing could be less obvious.
The ECB’s tightening of monetary policy between the summer of 2022 and September 2023 continued to have its effects on euro zone bank lending in the fourth quarter of 2023. However, in the absence of a further turn of the screw since September 2023, these effects have not intensified further. Outstanding bank loans to the private sector even accelerated slightly, year-on-year, in the fourth quarter (up 0.5% in December 2023 compared to 0.3% in September) in line with GDP (up 0.1% in the fourth quarter from 0.0% in the third). The credit impulse remains negative but increased slightly for the first time since the ECB began to increase rates in July 2022.
BNP Paribas Economic Research wishes you all the best for 2024. On the macroeconomic front, the highlight of 2023 was the peak in official rates in the United States and the eurozone, but what is in store for 2024?In this video, you can discover the topics and points of attention that will be monitored throughout 2024 for each team: Banking Economy, OECD and Country Risk.
After the historic peak in the first quarter of 2021 (“Covid savings”), financial investments and the household savings rate fell in step with each other through to the second quarter of 2022.
The tightening of euro-zone monetary policy, which began in July 2022 and carried on until September 2023, continued to curb demand for loans and dampen economic activity in the third quarter of 2023. The initial effects on core inflation have also been apparent since the end of the summer.
The impact on financial expenses of rising interest rates - the result of the European Central Bank tightening its monetary policy - is very mixed, depending on the euro zone country. The impact depends on the proportion of variable-rate loans in outstanding amounts, and also on levels and changes in the amounts borrowed.
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%.
The effects of monetary policy tightening on the distribution of bank credit in the eurozone, which have been obvious since Q4 2022, further intensified during Q2 2023. The private-sector credit impulse has fallen constantly since autumn 2022. It dropped below zero in February 2023 and hit, in June 2023, its lowest level since 2010. The non-financial company credit impulse has experienced its biggest downturn since 2008, falling from its historic summer 2022 highs into negative territory in the space of eight months (April 2023). Despite declining less overall, household-credit impulse went into the red earlier on (November 2022), as it was starting out at a lower level.
Already noticeable in Q4 2022, the effects of monetary policy tightening on the distribution of bank credit in the eurozone intensified significantly in Q1 2023.
Business bankruptcies in the European Union increased significantly in the fourth quarter 2022, reaching their highest level since 2015 according to figures published by Eurostat on Friday 17 February. The overall dynamics conceal large sectoral differences.
Banks surveyed by the ECB between 12 December 2022 and 10 January 2023 as part of its Bank Lending Survey (BLS, published on 31 January) report a tightening of the criteria for all loan categories in the fourth quarter of 2022. For companies, tightening is even the most pronounced since the sovereign debt crisis (2011).
Our households’ property purchasing capacity indicator tracks the development in the maximum purchasable area of a representative household in France. Before rebasing (Q1 2000=100), it compares borrowing capacity expressed as an amount (calculated according to the average household income, fixed interest rates and the average duration of loans) to the price of old housing per square meter. In the provinces, Households’ property purchasing capacity was significantly higher than its 1990–2021 average (+21%) in the second quarter of 2022; however, in Paris, where the long-term average takes into account the 1990 property bubble which had undermined households’ property purchasing capacity, it was almost equal to its 1990–2021 average (+2%)
After posting negative figures for most of 2021, the credit impulse returned to positive territory in early 2022 and rose to unprecedented levels (+3.8 points in August 2022 and +3.7 points in September 2022). This growth contrasts starkly with the sharp slowdown in the eurozone’s GDP in Q3 2022 (+0.2% quarter-on-quarter, compared to +0.8% during Q2 2022), which it undoubtedly helped to limit. After accelerating hugely since spring, in September 2022, outstanding loans to the private sector showed their strongest increase since December 2008 (+6.9% year-on-year), with outstanding loans to non-financial corporations (NFCs) showing their largest increase since January 2009 (+8.9%)
In the first half of 2022, large non-financial companies in the euro area were more inclined to take out new bank loans than to issue debt securities. According to the latest data available, bond issuance remained depressed in July and August. At the beginning of 2022, the average costs of negotiable debt and business bank loans were at comparable levels (for example, 1.1% for French companies in January 2022, according to calculations by the Banque de France1). The cost of bank loans is now, on a relative basis, markedly lower (1.65%) since the surge in inflation and tensions on the bond market have led to a much more perceptible average increase in the cost of negotiable debt issued by non-financial companies (3.69% in June 2022)
With strong acceleration since spring 2021, bank loans to private sector outstanding recorded, in June, its highest annual increase since 2009 (+6.1% year-on-year in June 2022). Annual increase and credit impulse for non-financial companies (NFC) reached levels not seen since 2006 (+6.8% and +4.9%, respectively). According to the banks surveyed by the ECB in June as part of its Bank Lending Survey (published on 19 July), supply chain bottlenecks and the rise in commodity prices increased working capital requirements and strengthened demand for loans with a maturity of less than a year.
The credit impulse in the eurozone, reflecting the year-on-year change in credit outstanding, remained negative in June 2021. As a reminder, the introduction of financial support measures for companies by eurozone governments led to exceptionally strong but temporary growth in bank lending to non-financial corporations in spring 2020. Combined with this, the slowdown in outstandings seen a year later (+1.9% y/y in June 2021 vs. +5.3% in March 2021) squeezed the credit impulse in lending to non-financial corporations (-5.3% in June 2021 vs. +0.3% in March).
The credit impulse declined sharply in the eurozone in March 2021, reflecting the fall in the annual growth of loan outstanding, although this resulted from a high base for comparison and was therefore widely expected. Moves by eurozone governments to introduce support measures for companies’ financing led to exceptionally strong growth in bank lending to non-financial corporations from March 2020 onwards.
Given the way outstanding amounts of equity and debt are valued[1] in national financial accounts[2], debt ratios calculated using these figures can give a distorted picture of the financial structure of non-financial companies. In contrast, capital increases and self-financing give a reliable approximation of changes in company capital. Our calculations suggest that French companies went into the pandemic in a strengthened financial position. Thus, the unprecedented increase in financial debt in 2020 (EUR 206 billion, with nearly EUR 130 billion in the form of government-guaranteed loans) was preceded, between 2015 and 2018, by a marked rise in capital, as the result of a significant increase in equity issues
In the past, bank lending to companies and GDP have tended to move in unison, but with the Covid-19 crisis, these movements have become uncoupled in the eurozone. At a time when GDP growth has been contracting on a year-on-year basis – with a sharp contraction in Q2 2020 due to lockdown measures followed by an easing trend in Q3 after restrictions were lifted and a quarterly rebound – bank lending to the private sector has accelerated rapidly (+6.9% year-on-year in November 2020), buoyed by government measures to support corporate financing, like PGE state-backed loans in France, and the banks’ strong implication in lending.
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...
