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    28 September 2021
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    In Spain, like in most Western countries, the 2008 crisis caused an unprecedented drop in industrial employment, the pain of which continues to be felt. In fact, there are almost 500,000 fewer manufacturing jobs than in 2008. Some of this decline, however, reflects an increasingly important shift from industrial firms to service offerings, which is not a bad thing. With the Covid-19 crisis and the EUR 69.5 billion Recovery and Resilience Plan (RRP), which will be rolled out over the next five years, strengthening industry in Spain has once again become an important area of focus for the authorities. A quarter of the RRP will therefore be dedicated to this objective. Spain currently enjoys comparative advantages in growth sectors such as the automotive sector and renewable energies, especially. Obstacles (low level of investment, shortage of skilled labour) remain significant, however, and will take time to resolve. In the long term, strengthening and modernising Spanish industry are two key levers to achieve the long-term goals set out in the España 2050 plan, which, among other things, foresees a significant increase in labour productivity and R&D by 2030, and still more by 2050.
    China’s public finances have been deteriorating for several years now, and the trend accelerated in 2020 with the Covid-19 crisis. Reforms introduced since 2014 have made the public sector’s accounts more transparent and improved the management of local governments’ budgets and debt. However, those changes have not stopped fiscal imbalances building up. In addition, large quasi- and extra-budgetary operations exist alongside the official budget, and there are many, sometimes opaque, links between the various public-sector entities. This means that analysing the public finances is often a complicated exercise.
    23 July 2021
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    The Covid-19 crisis has deeply affected our economies. Although the rebound observed in recent months seems to have been confirmed, uncertainty persists over their capacity to fully recover. This article will look at how the G7 economies reacted during post-recession phases in the past, in terms of GDP, private consumption and investment. How quickly did GDP in these economies catch up with pre-crisis levels and trends? What were the most dynamic components of aggregated demand during recovery phases? Given the specific characteristics of the Covid-19 crisis, can it really be compared with previous shocks? These are some of the questions that we will discuss in this article while highlighting current sector disparities. 
    The Covid-19 crisis did not spare India, and like many of the emerging economies, the country’s economic and social situation has deteriorated sharply. Yet India’s situation had already begun to deteriorate well before the onset of the pandemic, which only accentuated the country’s weaknesses. The very sharp contraction in GDP triggered by the Covid-19 pandemic highlights the economy’s structural vulnerabilities, especially the large number of workers without social protection. With the nationwide lockdown in April and May 2020, 75 million Indians fell below the poverty line, and there is reason to fear that the second wave could have a similar impact. In fiscal year (FY) 2021/2022, GDP growth should rebound vigorously, although forecasts are likely to be revised downwards due to the expected contraction in FY Q1 (the second quarter of the current calendar year), following the outbreak of the second wave of the pandemic. In the medium term, growth might fall short of 6% unless there is a significant easing of the structural constraints that are restricting the employment of regular workers and private investment. If growth does not exceed 6%, the government would have to face not only a possible downgrade of its sovereign rating by the rating agencies, but also increasing social risk. 
    25 June 2021
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    In the wake of the Covid-19 crisis, bank deposits, which represent the main component of broad money, have seen extremely rapid growth in both the eurozone and the USA. The origins of this newly created money have frequently been imperfectly identified, and the same goes for the possible factors for its destruction. The European methodology for monitoring money supply nevertheless offers a valuable basis for analysis. In this article we will apply this to US data. We learn that between them, the amplification of the Federal Reserve’s securities purchasing programme and the Treasury-guaranteed loan scheme to companies are sufficient to explain the rapid rise in the rate of growth in bank deposits. We also note that the extra money created will not evaporate suddenly once the pandemic is over or nonconventional monetary policies come to an end.
    The Covid-19 pandemic has had a significant impact on the Moroccan economy. After an unprecedented 6.3% decline in GDP in 2020, the first signs of a recovery are still fragile, even though vaccination campaigns are progressing in both Morocco and Europe, by far the country’s biggest trading partner. This is mainly due to the sluggishness of the tourism industry. It is thus vital that the authorities continue to provide support this year. Despite the rise in public debt, fiscal consolidation is unlikely to start before 2022. The rating agencies S&P and Fitch have downgraded the country to speculative grade. For the moment, however, macroeconomic stability is not a major source of concern. But tight fiscal manoeuvring room could become problematic in years to come. It seems to be more crucial than ever to intensify reforms given that the slowdown in growth and its feeble job content was already a source of concern before the crisis.
    02 June 2021
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    The economic shock caused by the Covid-19 pandemic has resulted in a sharp increase in banks’ cost of risk. This has been particularly steep for the Spanish, Italian and Portuguese banking systems, which are notably oriented towards retail banking and have relatively high levels of exposure to the sectors most affected by the pandemic. Moreover, the effects of the sanitary crisis on the cost of risk have been exacerbated by the forward-looking approach of the IFRS 9 impairment model for financial instruments, which has been in force since 1 January 2018. Under this accounting standard, it is not the defaults themselves that give rise to the recording of provisions for impairment, but the mere expectations of such defaults. Banks have therefore recorded more provisions at this stage of the economic shock than they would have under the superseded IAS 39, which might not necessarily be the case throughout the entire economic cycle. This said, the increase in the cost of risk in southern Europe has been limited, to some extent, by the margin of appreciation left to the banks’ discretion, coupled with governmental support measures and their preferential accounting treatment. Thus, the Covid-19 pandemic has represented a baptism of fire for the accounting principles embodied in IFRS 9. Despite an internal capacity to generate capital that has been reduced by the squeeze on financial profitability, due to decreasing revenues and increasing costs, southern European banking systems have, overall, sufficient loss-absorbing capacity to enable them to withstand a possible increase in credit risk, provided that the health situation remains under control.
    02 March 2021
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    Looking beyond the short-term economic shock, the Covid-19 pandemic and the exceptional health protection measures introduced to contain the virus raise many questions as to the lasting consequences of the crisis. The issue of zombie firms, which is far from new, has taken on a whole new dimension, as their weight in developed economies has progressively increased since the 1980s. Massive public interventions to tackle the effects of the pandemic, whether by governments – debt moratoriums, cancellations of employer social security contributions, widespread use of short-time working schemes, etc. – or by central banks – increase and prolongation of asset purchases schemes – could result in keeping non-viable companies afloat, raising fears of a zombification of economies.
    Before the onset of the Covid-19 pandemic, the United Kingdom had already begun to come out of the “age of austerity”, to borrow a phrase from former Prime Minister David Cameron. The massive intervention of UK authorities to support the economy through the Covid-19 sanitary and economic crises has significantly strengthened this trend. The government deficit ran at almost 20% of GDP in 2020, and the ratio of government debt to GDP increased by twenty percentage points to nearly 100%. Once the crisis is over, some adjustments will be needed. That said, the Treasury’s eagerness to bring public finances back under control rapidly could be counterproductive if it stifled the economic recovery. Moreover, long-term prospects, particularly demographic trends, suggest that balancing the government’s books will be no easy task.
    18 February 2021
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    Zambia’s recent sovereign default has cast a shadow of a looming wave of debt restructuring in Sub-Saharan Africa. The Covid shock has brought a significant risk of debt distress in several African countries, by exacerbating vulnerabilities that have built up over the past decade. While liquidity facilities through the DSSI and emergency lines have provided temporary support to many countries in the region, solvency issues remain and the prospect of debt restructuring is gaining ground. In this context, the methodology of the IMF and the World Bank remains the most suitable tool for assessing debt sustainability for low-income countries. The framework for common treatment of restructuring has recently been extended to all creditors. Given the scale of its financial commitments to African countries, China’s participation is essential. So far, the country has demonstrated a lack of transparency and limited cooperation. Its commitment to the common framework for debt treatment thus remains to be confirmed.
    12 January 2021
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    In third-quarter 2020, Turkish GDP had already returned to pre-Covid levels. Turkey’s economic recovery can be attributed to massive policy support – both fiscal and monetary –, which also involves risks. Inflation is significantly above 10%, and unlike many other emerging countries, the current account swung into a deficit again, which triggered a sharp depreciation in the Turkish lira. Faced with rising tensions, President Erdogan voiced to change the direction of economic policy. It should now have two pillars: a more rigorous policy mix, with a monetary policy that targets a lower inflation rate and greater attractiveness for non-resident investors. If these factors are sustained in the long run, they should help reduce volatility and release the bottlenecks that have weighed on Turkish growth over the past five years.
    30 November 2020
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    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?
    27 October 2020
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    Amidst low investment and stagnant productivity, Brazil has primarily relied on favorable demographics (labor accumulation) to grow. In the face of rapid population ageing and a decline in fertility rates however, Brazil’s demographic dividend has been gradually fading. Brazil will have to alter its pattern of growth and find avenues to stimulate capital investments and improve total factor productivity if its economy is to achieve higher medium-term growth prospects (i.e. lift potential growth). The administration has embraced this challenge through an ambitious structural reform agenda anchored on two complimentary pillars: enhancing the business environment and transforming the role of the state in the economy. The disruption caused by the Covid-19 pandemic has however slowed down the pace of reform and heightened uncertainty over the path of the economy in coming years. This begs the question of the reasonable timeframe within which productivity-enhancing private investment can become an alternative and durable engine of growth.
    21 October 2020
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    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. Our analysis focuses on household consumption’s (lack of) momentum since 2008 in general, and in 2019 in particular.
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