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The Bank of Mexico is keeping its real key rate at 1.8% (nominal 4.75%), given that inflation is at 3.0%. Growth is sluggish (shrinking 0.2% q/q in Q2). The peso hits a record low of 19.85 MXN/USD on 26 September.
GDP rose by 0.3% in Q216. True, this was a slowdown relative to Q1's 0.5% growth, although that was driven exceptionally by weather factors and adjustments after a gloomy 2015 year-end. Domestic demand has not fuelled growth as much as before, with a contribution that was only just positive, at 0.1 of a percentage point.
Spain reduced its public deficit by 0.9ppt of GDP in 2015 (to 5.1%) versus a reduction of 1.8ppt of GDP required by the European Commission. The latter judged that no effective action has been taken due to a declining structural deficit since 2014. No fine was finally adopted, but Spain is still required to correct its structural balance 0.7 ppt of GDP by 2018.
The BoE expects growth to slow sharply in the coming months, from 2.0% in 2016 to 0.8% in 2017 on annual average (versus 2.3% expected previously). The relatively strong figure for 2016 (more than 0.5% above our forecast) is due to the upside surprise in Q2 (0.3ppt above the BoE's expectations) and the expectation of a near-term recession to be averted.
In 2015, unit wage costs were stable in France after rising 1.2% in 2014. While wages increased by 1.4%, productivity gained 1.2% and payroll taxes dropped 0.3% as a result of the mechanisms in the Responsibility Pact.
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