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EcoWeek

    EcoWeek of 18 September 2020
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    Over the past 10 years, fostering inclusive growth has moved higher up the agenda of governments, international institutions and, increasingly, companies. Under Chairman Powell, it has become a key topic for the Federal Reserve through the focus on the heterogeneity of the labour market situation of different socio-economic groups. It has led to the view that pre-emptive tightening based on a declining unemployment rate is unwarranted. On the contrary, it may very well stop people from finding a job. It will be interesting to see whether other central banks and in particular the ECB in the context of its strategy review, will follow in the Fed’s footsteps.
    China’s economic dynamics continued to improve in August 2020. As seen in our monthly Pulse, the expansion of the blue area compared to the dotted area shows a more widespread recovery in activity. Whereas the improvement since March was initially driven by the rebound in industrial production and investment in public infrastructure and real estate, it has now reached other parts of the economy [...]
    EcoWeek of 11 September 2020
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    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.
    According to data from the Office for National Statistics (ONS), GDP in the United Kingdom dropped by more than 20% in the second quarter, which was the worst performance in Europe...
    The economic recovery has been stronger in the industrial sector than in services, the former benefitting from a sharp rebound in consumer goods spending, particularly durables. Moreover, the impact of health measures on industrial activity is lower than for services...
    This week’s Eurostat report confirmed that Spain has been Eurozone’s worst impacted country by the coronavirus. The resurgence of the epidemic and the implementation of new restrictions will hold back the economic recovery this semester, at least...
    EcoWeek of 04 September 2020
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    The Fed’s new inflation averaging strategy should have global real and financial spillover effects. The former refer to international trade whereby a more sustained expansion of US GDP should pull along the economies of its trading partners via increased US imports. The financial spillovers are driven by capital flows, monetary policy and risk appetite. These factors are highly intertwined. The new Fed strategy will also force other central banks to revisit their own strategy. This creates an issue for the ECB.
    Signs of the French economic recovery since the lockdown was lifted on 11 May are starting to show in our Pulse barometer...
    In the USA, as nearly everywhere else, the economy was partially paralysed in the spring of 2020 by protective health measures in response to the Covid-19 pandemic...

On the Same Theme

Looking beyond the second quarter GDP numbers 7/31/2020
Unsurprisingly, this week’s GDP numbers for the second quarter were exceptionally bad. The third quarter should see strong quarterly growth, if only because of a powerful base effect. It also leaves room for disappointment however, should the growth momentum start to slip over the summer. In the US, this already seems to have started. In the euro area, business surveys continue to improve and the employment expectations indicator sees a marked increase. Households are not convinced however and their unemployment expectations have remained broadly stable.
Covid-19 and the environment 7/17/2020
Due to the externalities of economic activity, the lockdown has had a considerable impact, not only on the economy but also on the environment. In a post-lockdown world, the question is how and to what extent the experience of the pandemic will influence the environment in the years to come. Covid-19 may make people more health-focused, including how the environment influences one’s health. This may change behaviour in terms of mobility and spending. It may also cause an increase in the allocation to sustainable investments, which in turn could influence corporate strategies. Changes in global value chains can also have an environmental impact. For fiscal policy, there is an opportunity of meeting the short-term goal of boosting the post-pandemic recovery by making investments that contribute to reaching the goals related to climate change and the environment.
What comes after the mechanical rebound? 7/15/2020
The easing of lockdown measures has caused a significant improvement in business sentiment and a mechanical rebound in activity and demand. In the near term, the narrowing of the gap between observed and normal activity levels should gradually lead to less spectacular growth numbers. These are underpinned by pent-up demand, monetary and fiscal policy support and the possibility for households to use the extra-savings accumulated during the lockdown. A lot will depend however on how uncertainty evolves. The health situation is not under control in certain countries and there are concerns about the risk of a flare-up. Households face income uncertainty due to bleak labour market prospects. Against this background, companies may tune down their investment plans.
How to spend it? Vouchers versus VAT cuts 7/3/2020
The bleak outlook for the labour market implies there is a strong case for measures to boost consumer spending in order to keep the recovery on track. A host of instruments can be considered: vouchers, VAT rate cuts, income tax cuts, tax credits, negative income taxes. Amongst these, a voucher programme offers many advantages given the possibility for fine-tuning the target group, the final beneficiaries, the type of spending and the regional dimension. However, it comes with considerable administrative costs.
Business sentiment continues to improve 7/3/2020
With an increasing number of countries scaling back if not removing the lockdown measures, the purchasing managers’ indices have improved further in June. The world manufacturing PMI is now even above the level reached in February. Big increases have been noted in the US, France, Germany, Ireland, Spain, Turkey, Indonesia and Vietnam. Brazil and India have also seen a considerable improvement, which seems at odds with the health situation in these countries [...]
COVID-19: main fiscal and monetary measures 7/2/2020
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.
The outlook for government bonds yields: some certainties, many uncertainties 6/17/2020
After dropping significantly when the pandemic was spreading, government bonds yields have evolved sideways in April and May, despite a rally in equities – which typically is accompanied by rising yields – and a huge increase in borrowing requirements. For the foreseeable future, two certainties will play a role – the current monetary policy stance will be maintained for a long time; budget deficits will stay high compared to pre-pandemic levels – as well as many uncertainties such as the pace of recovery. In the absence of a second wave, yields should increase somewhat, although central banks will not tolerate a significant increase.
Does forecast uncertainty matter? It depends 6/5/2020
The publication by the ECB of different economic scenarios illustrates the extent of uncertainty which at present surrounds the forecasts for key macroeconomic variables. As a consequence, companies may hold off investing, preferring to wait for better visibility. While understandable at the micro level, such a wait-and-see attitude could act as a drag on growth and reinforce the view of companies that their caution was warranted. The large increase in the dispersion of earnings forecasts points to huge uncertainty at the individual company level. However this has not stopped the US equity market from rallying.  Although several factors help to explain these different reactions to uncertainty, such dissension cannot last forever. At some point company cautiousness or investor bullishness will have to give in.
Purchasing managers’ indices have troughed but the level remains low 6/5/2020
The gradual easing of lockdown measures has for the month of May, as expected, led to an improvement in the manufacturing PMIs in all countries with the exception of the Netherlands and Japan. The extent of the rebound however varies greatly between countries [...]
Covid-19, unemployment, human capital and households’ balance sheet 5/28/2020
In the first episode, William De Vijlder takes a look at households’ balance sheets by considering how assets and liabilities are influenced by the pandemic. We will also see how the loss of human capital due to the deterioration of the labour market plays a key role in the post-pandemic economic environment.

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