Conjoncture

Conjoncture

    Conjoncture - 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.
    Conjoncture - 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
    Conjoncture - 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”.

On the Same Theme

PMIs confirm the collapse in global economic activity 3/25/2020
The PMI indices published this week give an early insight into the scale of the economic shock from Covid-19. The composite indices for Japan (35.8), Germany (37.2), France (30.2), the UK (37.1) and the US (40.5) all slumped in March. The euro zone composite PMI was the lowest ever recorded at 31.4. The deterioration was particularly marked for the sub-indices relating to employment and orders for goods and services. Figures for April, whilst remaining at historically low levels, are expected to show increasing divergence between the regions. In East Asia, internal demand should start to pick up, as activity starts to normalise in China. Conversely, the epidemic is spreading more rapidly in the US, India and Africa; meanwhile, many European countries remain in lock-down.
The covid-19 epidemic economic consequences: pervasive uncertainty, delayed recovery 3/12/2020
The coronavirus epidemic represents a combination of a demand, a supply and an uncertainty shock. This has knock-on effects on the price of oil and on financial conditions which in turn should end up acting as an additional drag on growth. The huge drop in the price of oil following the absence of an agreement amongst the OPEC+ countries on further production cuts, makes this worse. It hits the producer countries, increases the financial pressure on energy companies, in particular those which are highly indebted, whereas the reaction on the demand side will be muted due to the epidemic and lack of visibility. The timid improvement of business survey data at the end of 2019 has been stopped. Recent data show a very significant deterioration in China, Hong Kong. Elsewhere, the reaction has, on the whole, been limited, but this is not expected to last. The big drop in the price of oil complicates matters further. The Federal Reserve is back in (aggressive) easing mode, the Bank of England has followed and the ECB is expected to ease as well. Several governments have taken various, very targeted policy measures. We should expect more is to follow. When the peak of the epidemic will have been passed and the international propagation halted, the rebuilding of inventories as well as some pent-up demand should support growth. A very accommodative monetary environment should also help. However, the timing of the recovery entirely depends on how he epidemic evolves.
The global economy after the coronavirus outbreak 3/10/2020
Macroeconomic surveys conducted since the outbreak of the epidemic have provided relief thus far, but over the next several weeks we should expect the negative impact to become more visible in activity and spending data. Yet, the shock is of a temporary nature and a rebound of activity will follow once the supply chain disruption is abating and demand picks up again. In China, stimulus measures which have already been announced, should help in this respect. The unleashing of pent-up demand and inventory rebuilding should also play a role. The dynamics are rather clear but the timing of course depends on how the epidemic evolves, in China and other countries.
Except for China and Hong Kong, little impact thus far of the coronavirus 3/6/2020
At the start of a new month, the purchasing managers indices are amongst the earliest data providing information on what happened the month before. Following the coronavirus outbreak they were even more eagerly awaited than normal. For the manufacturing sector, the picture is very mixed, with a considerable decline for the world index on the back of huge drops in China and Hong Kong. On the other hand, the index for the eurozone saw another increase, driven by Germany, the Netherlands, Spain and Greece with Italy remaining stable and France weakening. In the US, both the Markit PMI and the ISM index declined. Clearly, except for China and Hong Kong, the data do not yet show the impact of the coronavirus epidemic but it is only a matter of time for this to happen. To some degree this also applies to the services PMIs. For this sector, there were huge declines in China and Hong Kong. Japan weakened considerably, contributing to the decline of the world index. The eurozone was stable. The decline in the US is puzzling considering that the ISM non-manufacturing index improved.
The coronavirus: which role for economic policy? 3/6/2020
The Federal Reserve’s rate cut as well as promise of action by other central banks and finance ministers raise the question of how economic policy can react to the epidemic. The very nature of the shock makes monetary policy at first glance ill-equipped.
The coronavirus: international propagation and tail risks 2/28/2020
The international propagation of the coronavirus forces a rethink of the consequences for the global economy. Coming after the outbreak in China, the marginal impact on the global economy of the spreading of the epidemic should, a priori, be rather limited. Yet, financial markets have reacted very negatively. This jump in risk aversion reflects concern that the economic consequences may have been underestimated thus far as well as increased focus on tail risk. This ‘financial accelerator’ phenomenon may in turn contribute to the worsening of the growth outlook.
Central banks: current objectives and the issues they raise 2/26/2020
In this podcast, we look at central banks policy objectives, which sometimes differ. The ECB’s top priority is to meet its inflation target, whereas the Fed is targeting both inflation and full employment. These objectives raise several questions: how can we measure inflation and full employment? How do central banks set their targets? And what instruments can be used to attain them? We will also see how central banks must deal with a constantly changing economic environment.
Central banks: the trade-off between inflation and financial stability 2/26/2020
How to strike the right balance between inflation and financial stability has been a source of debate for decades. In this second podcast, William De Vijlder shows how the central banks give priority to inflation targets over financial stability. He uses a few examples to illustrate how central banks will opt to hold a steady course even when confronted with the risk of instability, which is often caused by financial market turmoil.
Central banks: Addressing the policy dilemma 2/26/2020
In the third podcast, William De Vijlder shows how a central bank’s persistently accommodating monetary policy to bring inflation in line with the target can have a negative impact over the long term, threatening both growth and financial stability. In case of a crisis, central banks no longer have much room to intervene, since they have used up their manoeuvring room in the pursuit of their inflation target.
Uncertainty: conflicting signals 2/21/2020
The data used to chart different measures of uncertainty do not yet take into account the impact of the coronavirus. With this caveat in mind, the signals nevertheless go in different directions...

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