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    28 July 2020
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    The analysis of banks' business model responds to strategic as well as regulatory needs. It can also contribute to studying the effects of monetary policy, amongst other things. However, no harmonized definition exists in the literature. The authors therefore regularly use hierarchical cluster analysis to objectively classify banks according to their business model. These empirical, algorithm-based approaches rely heavily on balance sheet variables. Still, the distribution of bank sources of income and assets under management are also relevant variables. We therefore perform our own classification of European banks according to their business model using all these variables. In addition, we apply a divisive (top-down) hierarchical classification that appears to perform better than its agglomerative (bottom-up) version, which is more common in the literature. Finally, the retention of a supplementary principal component, in addition to the two that are traditionally retained, improves the quality of our classification.
    30 June 2020
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    The Covid-19 shock has triggered a significant fiscal policy response by European Union member states. Even though it is likely to be short-lived, the 2020 recession will be historic. The fiscal response has therefore been essential in avoiding much more serious and longer-lasting economic consequences. Member states have not all been affected in the same way by the current crisis, and the scale of their fiscal responses varies. The European response has been one of the few positive aspects of the crisis. However, the challenges are not yet over. Levels of risk and uncertainty on both the public health and economic fronts will remain particularly high over the next few months. An agreement on a European recovery programme is therefore needed and there is little likelihood of any letting up in national efforts.
    The exceptional measures taken by the US authorities to bolster the liquidity of companies and markets in response to the Covid-19 crisis have resulted in a significant expansion of bank balance sheets. Since the financial crisis of 2007-2008, regulators have tightened balance sheet constraints significantly. Fearing that leverage requirements could damage banks’ ability to finance the economy and support the smooth functioning of financial markets, these have temporarily been relaxed. However, the Federal Reserve is unlikely to undergo a slimming regime that will scale back bank balance sheets for a number of years (and almost certainly not before the end of the period of relaxation of requirements). As a result, we cannot rule out the possibility that the leverage ratio constraint will return as quickly as it was removed.
    04 June 2020
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    The Covid-19 crisis will not be without its consequences for the Russian economy, which faces twin supply and demand side shocks against the background of collapsing commodity prices. According to forecasts from the IMF and the Russian central bank, economic activity could contract by between 4% and 6%. Macroeconomic fundamentals are likely to worsen, but without undermining the government’s ability to meet its obligations. However, this latest shock will weaken a banking sector that is in full restructuring mode and could delay the important government development projects that will be essential to boosting growth over the medium term. Against this background, on 2 June the government announced a new plan of RUB 5 trn (4.5% of GDP) to support the economic recovery and sustain potential growth. It remains to be seen whether it will be of such a nature as to raise potential growth. To date, no details are yet available on the content and modalities of its implementation between Q3-2020 and Q4-2021.
    30 April 2020
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    Pressure on dollar liquidity created an urgent need for action from the US Federal Reserve (the Fed). Assuming its role as the global lender of last resort - the consequence of its position as the issuer of the international trade and reserve currency - the Fed reactivated the permanent or temporary swap agreements that it established with 14 other central banks in 2008. In order to extend the reach of its dollar supply, the Fed has also created a repo facility for the central banks of countries that do not have dollar swap agreements. The high fees charged, however, will limit take-up, depriving the markets of what could be a significant calming influence.
    In the coming decades, the European countries will be confronted with rising costs related to population ageing. Based on very optimistic assumptions, simulations carried out by the EU’s Economic Policy Committee suggest that these costs are manageable. Persons that enter the workforce now are unlikely to retire under the same conditions as those who retire at the moment. The transition to leaner public pension schemes calls for accompanying measures such as incentives to remain longer in the labour force and inducements to better prepare retirement. In particular, the authorities could inform employees regularly about their pension rights and encourage them to increase their retirement savings.
    11 March 2020
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    Depending on the source, estimates of the number of ‘cryptocurrencies’ vary between 1,600 and 3,000. These crypto-assets struggle to fulfil the three economic functions of money, and so cannot be considered as such. Although their fairly modest uptake currently limits their economic impact, increased use could create risks in the transmission of monetary policy, money creation and financial stability. Several central banks are looking at the introduction of a ‘central bank digital currency’ (CBDC) in response to these challenges. However, far from being simply a substitute for private cryptocurrencies, these CBDCs would carry specific risks in terms of financial stability, most notably that of a ‘digital bank run’. We believe that their possible introduction, and the associated details, will require meticulous analysis.
    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.
    23 December 2019
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    For the first time since 2010, the five major Portuguese banks returned to profitability in 2018. The main factors behind this swing into profits were a faster decline in interest expense than in interest income, and tight control over operating expenses and the cost of risk. The widening of the net interest margin offset the decline in the outstanding amount of bank loans, increasing net interest income. Other things being equal, the decrease of the interest rates also contributed to the reduction in the cost of risk and the clean-up of bank balance sheets. Although the non-performing loan ratio and outstanding amount were halved, they remain at high levels. Recent trends on the profit and loss account of the major Portuguese banks show, amongst other things, how low interest rates are having a certain impact on a banking system that is primarily geared towards retail activities and variable-rate loans.
    Cities today concentrate more than half of the world population and more than 80% of global GDP. The underlying dynamics explaining their ever increasing importance are the result of a variety of positive externalities (thicker labor markets, knowledge spillovers, input sharing…) generating self-reinforcing effects. These rapid waves of urbanization have key implications for the production of goods and services, environmental quality and human development. The world is one of density spikes and disparities, driven by the unstoppable ascendance of metropolises. Greener and more inclusive cities should be promoted in order for them to remain livable. In this respect, public policies have an important role to play
    09 December 2019
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    The slowdown in economic activity in the Eurozone and inflation structurally below the target rate have raised the spectre of “Japanification”. This would mean effective growth running below potential, very low interest rates and negative inflation. In Japan, this combination of factors resulted from the bursting of the financial and real estate bubbles of the early 1990s. There is a range of factors that could cause “Japanification”. Faced with the challenges of an ageing population and slowing productivity gains, the Eurozone will need to focus its efforts on boosting its potential growth and its resilience to shocks. Short- and medium-term economic policy choices will therefore be crucial in limiting, as far as possible, the risk of “Japanification”.
    08 November 2019
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    The financial crisis of 2008 left its mark on the macroeconomic, regulatory and legal environments in the United Kingdom. It was followed by a long period of consolidation in the banking sector. Although the major British banks have managed to improve their performances recently, they are now faced with fresh challenges, starting with the uncertainty surrounding Brexit. For the banks, this uncertainty will not be resolved immediately by the conclusion of the Brexit as they will still need to adjust to the loss of their European passporting rights and potentially to address a contraction in demand in their domestic market.
    27 September 2019
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    Private consumption has played a greater role in the Chinese economy in recent years, but this growth engine remains fragile. At a time when the export sector is hurt by US protectionist measures and weak global demand, China is seeking other solid sources of growth. Yet private consumption growth is slowing and is likely to be disappointing in the short and medium terms. A catching-up dynamic should continue, supported by urbanization, an ageing population and action of the government, which strives to reduce income inequality, improve housing affordability and further strengthen the social protection system. owever, these structural changes will take time. Moreover, although certain sectors show potential for major productivity gains, wage growth is likely to be hampered by the troubles of the industry, where production growth is slowed and the move upmarket is hampered by rivalries with the United States. Lastly, household debt has swelled rapidly in recent years and could now start to place a damper on consumption.
    Job polarization describes the structural deformation of the job market in which the share of jobs increases at the top and bottom of the skills ladder and decreases for middling jobs. In theory, job polarization is U shaped. Empirical data easily shows a decline in the share of jobs in the middle distribution (the bottom of the U), as well as an increase in the most skilled jobs (right side of the U). This J-shaped semi-polarization is symptomatic of an “upgrading” effect, i.e. the overall rise in the level of education and skills attainment. The left side of the U, in contrast, which represents the increase in the share of low-skilled jobs, is often less developed and sometimes non-existent. In France, job polarization is more or less apparent depending on the study. There are several explanations for job polarization. Technological progress seems to be the dominant explanation although other factors also come into play including globalisation and a series of institutional and structural factors, such as job market regulation, expansion of the service sector and an aging population.
    16 July 2019
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    The sub-Saharan Africa’s largest economy is having hard time to recover. External rebalancing has showed some progress. But imports remain well below pre-crisis levels. In addition, the rebuilding of FX reserves is being accompanied by increased financial vulnerability, which puts pressure on monetary policy as the authorities give the priority to exchange rate stability. Weak public finances are an additional constraint. In the short term, and despite its strong potential, the economy is expected to grow more slowly than the population. As well as improving macroeconomic stability, the authorities will have to address the deep-seated factors that are holding back the economy as a whole.
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