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    11 January 2019
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    Fed chairman Powell has recently emphasized that the FOMC will be patient given the muted inflation reading and that it is ready to shift the policy stance swiftly if required. He also considers that financial markets are pricing in downside risks well ahead of the data. This means that they are too pessimistic on growth. Professional forecasters' estimates of the probability of entering into recession in the coming quarters do not display the typical pre-recession dynamics either.
    For Germany, 2019 started with a hangover. Most indicators that we follow are below their long-term average and all surprised on the downside. In particular, the export-oriented manufacturing sector has been badly affected.
    04 January 2019
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    The big correction of US equity markets since the end of September reflects increased investor concern about the growth outlook. The data for the 4th quarter nevertheless point towards ongoing sustained growth. Data released since the start of the year provide conflicting signals with a big decline in the ISM manufacturing index and a strong increase in non-farm payrolls. Uncertainty about US-Chinese trade remains a key factor weighing on business sentiment.
    The vast majority of the indicators remain above their long term average, with inflation and the core personal consumption expenditures deflator being notorious exceptions. Compared to consensus expectations the picture is mixed.
    21 December 2018
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    The new projections of the FOMC show a downward revision to growth in 2019, a slower pace of Fed tightening and a lower cyclical peak level of the federal funds rate. Lower bond yields, a weaker dollar and a global decline in equity markets show that investors are in the grip of a growth scare. This is also echoed in a survey of US CFOs but this is at odds with the outlook for the drivers of economic growth. Growth worries probably reflect a focus on tail risk (rather than on the mean forecast) which may be explained by rising uncertainty.
    After stabilizing between July and September, the credit impulse declined in October, still reflecting an acceleration of loans to the private sector on a year-on-year basis, but less buoyant.
    14 December 2018
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    As expected, the ECB Governing Council has decided to end the net purchases in the context of its asset purchase program. This new phase can be called quantitative pausing, before eventually moving to quantitative tightening, i.e. to shrink the size of the balance sheet. The end of net purchases increases the role of forward guidance as an instrument to control interest rate expectations. The enhanced forward guidance, i.e. continuing to reinvest for an extended period past the first rate hike, should be welcomed.
    Even though most headline indicators exceeded downbeat expectations in November 2018, they remain on a declining trend. The PMIs for Manufacturing and Services, pulled down by the sharp decrease in the French PMI related to heightened social tensions, just managed to stay above the expansion line. Economic activity slowed to 0.2 % in Q3 2018, which actually reflects some divergent developments.
    07 December 2018
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    Oil and metals prices are down significantly this year. For oil this seems to be predominantly driven by supply factors. The decline of metal prices probably reflects the softening of global growth. There is a clear negative relationship between oil price changes and subsequent US real GDP growth. US growth is expected to face a number of headwinds in 2019 but the decline of the price of oil should act as a tailwind.
    Except consumer confidence, which dropped off sharply in November, surprising again on the downside and still standing well below its average, the other economic indicators available to date are positive.
    30 November 2018
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    Australia has seen 27 years without a recession and IMF and OECD forecasts show ongoing growth in coming years. Population growth, productivity growth, commodity exports to China and other fast growing Asian economies have played an important role together with policy aimed at enhancing economic flexibility. The floating exchange rate has been an important countercyclical and hence stabilising factor . The housing boom has become a source of concern from a financial stability perspective with recent prudential measures allowing for a “positive correction”.
    Most indicators remain above their long term average and several, of which the all-important non-farm payrolls, have surprised to the upside. Ongoing strong growth is reflected in the Atlanta Fed nowcast for the current quarter (an annualised 2.6% versus the previous quarter).
    23 November 2018
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    Support seems to be growing for the proposal of France and Germany for a eurozone budget. This would contribute to a much needed enhancement of economic resilience, that is the ability to cope with shocks. Resilience can also be strengthened through private and public risk sharing and policies seeking to boost potential growth. Boosting resilience is all the more important considering that risks to global growth seem to be tilted to the downside.
    Poland’s GDP growth surprised to the upside in Q3 (+5.7% y/y), the strongest quarterly reading in ten years, after an already strong performance in H1 (+5% y/y). Economic growth was driven by booming private consumption and a pick-up in EU funded investment, while exports lost steam.
    16 November 2018
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    The balance sheet of the Bank of Japan is now equivalent to the country’s GDP, yet inflation remains stubbornly low compared to the official target. Years of quantitative easing have caused distortions in equity markets and weighed on liquidity in the market for JGBs. There is concern that the marginal effect of BoJ purchases will wane, leading to an effective upper bound to QE. If this were to be the case, the relevance would go well beyond Japan and cause doubts about the effectiveness of more QE in case of a new downturn. 
    This week’s GDP release for Q3 at -0.2% q/q was much weaker than generally predicted. The year-on-year growth rate declined to 1.1%. A specific reason was the temporary problem in the German car industry in adapting to the stricter European rules concerning CO2 emissions. A more structural problem for the manufacturing sector is weakening global demand, particular from China related to domestic problems and to the trade conflict with the US.
    09 November 2018
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    Sentiment indicators continue their softening trend and the flash estimate points towards weak third quarter GDP growth. Yet drivers of final demand continue to point towards ongoing good growth in the upcoming quarters. Data in the coming weeks as well as developments concerning Brexit and US trade policy will be key to confirm or tune down this assessment. 
    Fluctuations in uncertainty can have a considerable impact on economic growth via their influence on confidence of households and corporates about the future as well as on the cost of financing. Uncertainty is not directly observable so proxies are used.
    31 October 2018
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    People update their expectations more quickly when media coverage of a given economic topic becomes more intense. The change in the outlook is more important than today’s cyclical environment. Monitoring media coverage of economic slowdown risk will become particularly relevant against the background of a loss of momentum in survey data
    After a rebound in June, the pulse of lending stabilized in September. This dynamism is due to the continued acceleration of loans to non-financial corporations and, to a lesser extent, households. Loan demand by households remains more favorably oriented than that of non-financial corporations, while the credit conditions continue to ease but not as fast as in August.
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