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The market would be slightly less dynamic in 2016. Transaction volumes would remain high, although slightly down, by 5%, in the pre-owned segment. This is because housing demand from first-time buyers could dip, linked to the slight increase of interest rates. Pre-owned home prices could be slightly up, by 1-2%, in 2016.
The public debt ratio, at 95.3% of GDP in 2014, rose slightly in 2015 to 95.7%. It is forecast to see further small increases in 2016, to 96.2%, and in 2017, to 96.5%. These ratios are calculated inclusive of financial support for Eurozone states. This modest increase in the public debt ratio can be explained by moves to cut deficits and the recovery in nominal GDP growth.
Business investment has been increasing for nine quarters. After rising by 1.9% in 2015, it is forecast to accelerate by a modest 2.9% in 2016 and by 3.3% in 2017. The increase is modest if we compare it to past business cycles where the recovery was more vigorous and not so late in arriving. In terms of its level, business investment has only just returned to its 2008 level.
The Saudi economy is high vulnerable to oil prices. The fall in oil prices caused a deterioration as of mid-2014 in the upper part of the balance of payments. The trade balance has posted a deficit since Q1 2015. Following large surpluses in recent years, the current-account balance showed a deficit in 2015 due to an average oil price of USD 53 per barrel.
A -0.40% interest rate on TLTROs would apply providing that bank lending to non-financial customers (excluding mortgages) exceeds a target, specific to each country, by 2.5% by January 2018. This would correspond to a compound annual growth rate in eligible lending of close to 1% in the euro area, which seems not difficult to reach.
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