Ecoflash

EcoFlash

    EcoFlash of 27 July 2020
    The Eurozone Purchasing Managers’ indices (PMI) for July were better than expected. This is visible at country level, as the PMIs for France and Germany rose strongly. This improvement is noticeable in the eurozone services sector, which rose to a two-year high (55.1). The manufacturing PMI climbs above the expansionary line for the first time since January 2019. These positive numbers have to be taken with caution. Difficulties on the supply side appear to recede, but problems on the demand side are likely to persist. Consumer behaviour will be a key element for a stronger economic recovery
    EcoFlash of 22 July 2020
    The BoE and UK government have responded to the Covid-19 crisis with a broad range of measures. These were announced swiftly, but some have taken quite a while to implement, particularly when it comes to financial support for private sector companies. These measures share the feature of relying heavily on the country’s banking sector, which is in solid shape despite facing the same challenges as banks in other European countries. All this is taking place against the background of Brexit and the government’s refusal to extend the transition period on the basis that this would increase uncertainty for businesses and could reduce the flexibility they will need to react to the health crisis.
    EcoFlash of 08 July 2020
    In the past decades, German enterprises have been offshoring activities, in particular to Central and Eastern Europe and China. Despite the slowing of the globalisation pace in recent years, German industry is still losing ground in textiles, chemical and pharmaceuticals, and computers, electronic and electrical equipment. Despite China’s dominance in global manufacturing production, Germany has remained an important global and regional player. Supply chains disruptions related to Covid-19 have increased calls for a reassessment. However, it is unlikely to lead to radical changes in global supply chains. Only in case of market failures, as seen in the field of pharmaceuticals, policies should be developed to correct them. 
    EcoFlash of 02 July 2020
    This document presents the budgetary and monetary measures taken in several countries as well as the EU and the eurozone to address the economic consequences of the Covid-19 pandemic. It is presented in such a way that it facilitates an international comparison.
    EcoFlash of 29 June 2020
    The Central European countries are exposed to the impact of the Covid-19 pandemic on trade flows, through their integration in multi-country supply chains. In the short term, it creates spillover effects from the contraction in economic activity observed in Western Europe, particularly in Slovakia and the Czech Republic, via the automotive sector. Although the Central European countries moved up the value chain in the automotive industry, the proportion of a vehicle built locally has not widely increased in recent years. There are still solid arguments for maintaining these industries in Central Europe: Competitiveness is still favourable and clustering effects (cost savings arising from the presence of several manufacturers in the same area) materialized in ways that would be hard to replicate elsewhere.
    EcoFlash of 17 June 2020
    Major economic policy responses have been introduced to try to attenuate the impact of the Covid-19 pandemic on the economy. This document reviews the key measures taken by central banks and governments in a large number of countries as well as those taken by international organisations. It includes measures that were introduced through 15 June. It will be updated regularly.
    EcoFlash of 09 June 2020
    The Covid-19 crisis will leave its mark on the economy. However, the decade ahead offers new prospects for growth and employment. Spain suffers from a lack of employment and investment in technology-related sectors, but has opportunities to close these gaps. The renewable energy sector can be a significant source of employment over the medium to long term.The National Energy and Climate Plan is a significant step forward (if passed and implemented). The European Green Pact and Brexit may also help boost high-tech investment in the country.
    EcoFlash of 20 May 2020
    The shape of the post-crisis recovery will depend on the characteristics of each economy, the fiscal response and the level of integration in global value chains. Even before the COVID-19 crisis, some eurozone economies were more vulnerable than others. High levels of debt or unemployment could limit the strength of the recovery. At a domestic level, the sectoral structure, the pattern of private consumption and the labour market situation will be crucial. A high dependency on tourism, a sector durably impacted by the crisis, could hold back the recovery. At the external level, a slow recovery in global trade would hit the most open economies. Moreover, the distortions in global value chains during this crisis could weaken the most highly-integrated economies over a longer period.
    EcoFlash of 27 April 2020
    The Covid-19 crisis will result in a sharp contraction of eurozone GDP. However, its effect on inflation is still unclear. The impact could be disinflationary over the short term, although no consensus has emerged as to the likely medium term trend. In March, total inflation in the eurozone fell significantly, also reflecting the effect of lower energy prices. The destruction of a portion of the productive capacity could constrain supply in the medium term, whilst public policies will support demand, thus encouraging an acceleration in prices. Conversely, a lack of demand relative to potential supply could maintain a disinflationary bias in the eurozone.
    EcoFlash of 22 April 2020
      Major economic policy responses have been introduced to try to attenuate the impact of the Covid-19 pandemic on the economy. This document reviews the key measures taken by central banks and governments in a large number of countries as well as those taken by international organisations. It includes measures that were introduced through 20 April. It will be updated regularly.

On the Same Theme

ECB: patience required 9/11/2020
The outcome of the ECB meeting was eagerly awaited considering the latest inflation data, the strengthening of the euro and the Federal Reserve’s new strategy of targeting average inflation. The implicit message from the ECB President’s press conference was “be patient” on the three areas of concern. Inflation is projected to pick up whilst staying well below the target, the euro exchange rate is being closely monitored and the sheer number of strategy review workstreams implies it will take quite some time before we learn about the outcome in terms of the inflation objective.
The headaches of the ECB 9/4/2020
The Covid-19 represents a massive disinflationary shock because of the demand shortfall it creates. This has triggered a very strong reaction of central banks across the globe, including the ECB. The ECB’s action –in particular the PEPP- has been successful in maintaining fluid financing, both bank-based and capital-market based. Nevertheless, the ECB has a headache, three actually. Inflation is too low and declining, the strong euro reinforces this development and there is concern that the change in the longer-term goal of the Fed, which will now target inflation averaging 2 percent over time, will complicate matters.
The recovery continues but momentum is slowing 8/31/2020
The latest flash PMIs had raised some concern given the weakening of the composite index for the eurozone (from 54.9 to 51.6) and Germany (from 55.3 to 53.7) and an even bigger decline in France (from 57.3 to 51.7).
The euro area economy: doing better 7/31/2020
Survey data for the euro area continue to improve. The flash purchasing managers’ indices for July have passed the 50 hurdle in manufacturing and services as well as for the composite index, implying activity is expanding again. In addition, export orders are improving. Although companies feel more confident than the month before, the level of confidence is still rather low compared to historical averages. This is illustrated in the latest data for German and French business sentiment: better but starting from a low level. Caution continues to prevail, which shows up very clearly in the employment component of the business surveys. A lot has to do with the concern about how the pandemic will evolve. Against this background, the fiscal stimulus at the national and EU level will be more than welcome.
Credit pulse: demand is still robust for corporate loans but continues to slow for household loans 7/17/2020
The bank lending pulse picked up slightly in the Eurozone in May 2020 (+1.9%, after +1.5% in April and +1.7% in March) even as Eurozone GDP is expected to have entered a record-breaking decline in Q2 (-13.5% q/q vs. -3.6% q/q in Q1 2020), as national lockdown measures have a lasting impact on economic activity. Bank lending to the private sector has accelerated rapidly since March (+5.3% in May, after +4.9% in April and +5% in March) after holding at a dynamic but relatively stable annual pace since summer 2018 (+3.5% on average). Lending to non-financial companies continued to grow at a rapid pace in May (+7.4% after +5.5% in March), offsetting the slowdown in household lending (+3%, after +3.4%). Faced with plummeting sales, many companies continued to draw on approved credit lines or take out new bank loans (often benefiting from state-backed guarantees introduced in response to the coronavirus crisis) to finance current expenditures and rebuild precautionary cash balances...
Erasing the loss of activity will take a long time 7/15/2020
Although the Eurozone member countries seem to have the first wave of the Covid-19 pandemic well under control, they are now facing major economic hardships. The most recent leading economic indicators are showing signs of a turnaround but the road ahead will still be long. It will be hard to fully absorb the loss of activity reported at the height of the crisis. Public policies will play a crucial role. In the months ahead, the probability is very high that there will be a sharp increase in the jobless rate, especially for long-term unemployment, and a series of corporate bankruptcies. The European Central Bank (ECB) is providing member states with very favourable financing conditions. A response at the European level must come through, and the Recovery Fund needs to be set up rapidly.
A growth spurt or marathon? 7/10/2020
The recession of 2020 is unique in nature and, in recent history, in depth. It should be followed by an equally unique recovery. The first phase should be particularly strong and driven by the easing of lockdown measures. Thereafter, growth should be essentially demand-driven. The lockdown-induced drop in demand led to forced savings. Tapping into these excess savings should provide a considerable boost to consumption. However, a significant deterioration in the employment outlook would mean that the forced savings during the lockdown would morph into precautionary savings, implying growth disappointments and a negative feedback loop.
A recovery, but the road ahead is long 7/3/2020
Are we over the worst? In the short term, that would seem to be the message from the latest economic data for May and June at our disposal. Having hit record lows in April, activity indicators posted a rally in May, and an even steeper recovery in June. This recovery was expected, despite the public health measures still in force, given the ending of the lockdown in the eurozone member states. However, the economic activity is still weaker than in normal periods (pandemic free) [...]
Fastest broad money growth since 2009 6/3/2020
M3 monetary aggregate growth continued to accelerate in the Eurozone in April, to 8.4% year-on-year from 7.5% in March, the strongest annual growth rate since early 2009. Yet the monthly growth rate of the money supply aggregate eased in April to a seasonally-adjusted 1.2% m/m, well below March’s peak of 2.5% m/m, but still three times higher than the long-term trend of 0.4% m/m. Although credit to the private sector remains by far the largest counterpart of M3 money supply, credit to general government made the biggest contribution to the acceleration of money supply growth since early 2020, bolstered by the intensification of the Eurosystem’s government securities purchasing programme (a cumulative total of EUR 67 billion in March and April 2020). Despite strong money supply growth, the Eurostat’s preliminary estimates suggest that eurozone inflation declined again, to 0.1% in May 2020, the lowest level since June 2016, reflecting the impact of lockdown measures and the collapse of energy prices.  
First signs of a timid turnaround 5/29/2020
Without a doubt, the eurozone GDP will contract much more sharply in Q2 than in Q1 (-3.8% on a quarterly basis, q/q). Yet this deterioration generally seems to have been halted. After a timid upturn in the Purchasing Managers Index (PMI) in May, the eurozone Economic Sentiment Index (ESI) also seems to have bottomed out. After dropping to an all-time low of 64.9 in April 2020, the ESI picked up slightly to 67.5 in May [...]

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