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  • World – Macroeconomic Scenario for 2019-2020: prevention better than cure

    Edition April 15, 2019

    In the US, the strength of the labour market (where the unemployment rate is at an all-time low despite the fact that the participation rate is not falling) has finally led to a rise in average wages, which, without any increase in inflation, will eat into firms' margins and productive investment. The contribution from net external demand is likely to be only very slightly negative, enabling growth to edge down ‘gently' towards its potential level of 2%.

    In the Eurozone, a marked drop in foreign demand is behind the sharp slowdown in growth. The slowdown has triggered fears that Eurozone growth, which came late to the phase of swift expansion, could brutally and prematurely drop off. But, as wages take up the slack from jobs, demand from households (consumption and housing investment) is proving resilient. Firms' high margin ratios and continued easy access to financing are conducive to investment. On the other hand, the outlook for any recovery in external demand is uncertain, and it is the incentive for investment that is giving way. Failing any recovery in exports, growth seems unlikely to exceed 1.2% in 2019.

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  • Macroeconomic Scenario for 2019-2020: plenty of twists and turns to negotiate cautiously

    Edition December 21, 2018

    In the Eurozone, against a backdrop of an accommodative monetary policy and a fiscal policy that is making a positive contribution to growth, the still-robust nature of fundamentals points to the maturity of the cycle but not its imminent demise. Supply-side pressures, which emerged at the peak of the cycle in late 2017, have progressively faded. They no longer seem able to generate the kind of margin erosion that would trigger a sudden downturn. Eurozone growth, which is fated to shift gradually to a pace more in line with its estimated 1.5% potential, was following a normal path – namely that of a slowdown – falling from an annualised 2.8% in summer 2017 to 2.2% in spring 2018. Since the summer, however, the deceleration has gathered pace and the still-favourable information provided by the hard figures is being disputed by the worsening sentiment derived from the surveys.

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  • France – What are the economic consequences of the Gilets Jaunes crisis?

    Edition 20 December 2018

    The "Gilets Jaunes" crisis affects growth in Q4 2018, revised to +0,2% qoq from +0,4%. In the face of this crisis and the demands of the "Gilets Jaunes", two sets of social support measures were announced. These two sets of measures, which represent around €10 billion, will result in a significant additional gain in purchasing power of 0.7% in 2019. Consumption will be more sustained, and GDP will increase more strongly than initially forecast, +1,8% yoy in 2019. However, the deficit-to-GDP ratio is revised upwards significantly for 2019, from 2.8% to 3.3%.

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  • Italy – Economic environment : Under pressure

    Edition 26 October 2018

    The government's single-minded focus on growth as a way of ensuring the sustainability of public accounts is a risky wager. The deficit will rise to 2.4% in 2019 but then fall to 2.1% in 2020 and 1.8% in 2021. Budgetary expansion will occur next year but will be followed by a neutral budgetary stance. Growth projections are brisk, at 1.5% in 2019 (after 1.2% in 2018), 1.6% in 2020 and 1.4% in 2021. The European Commission has detected and noted a serious breach of the budgetary policy requirements set out in the Stability and Growth Pact. The Commission is now threatening to initiate procedures against Italy for its excessive deficit.

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  • World – Macroeconomic Scenario for 2018-2019: "And yet it moves"

    Edition October 4, 2018

    Risk-aversion translates into periods of severe turbulence and increased volatility. It justifies the fact that core long-term rates are not picking up significantly, despite upbeat growth in the US, satisfactory nominal growth in Germany and a strong USD. Risk can also, obviously, lead to a downward revision to growth forecasts and negatively affect investment behaviour.

    Thus, things could prove delicate in 2020, with a widespread downswing in growth. In the US, when the fiscal stimulus has largely run its course and the fed funds rate is in restrictive territory, growth will inevitably slow sharply. The Eurozone, for its part, will need to cope with significantly more difficult times without having built up the kind of room-for-manoeuvre needed to boost dangerously flagging growth.

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  • UK – Bank of England: On course for slow tightening despite Brexit uncertainty

    Edition August 6, 2018

    The BoE increased its key policy rate by 25bp to 0.75% at the August monetary policy meeting. Well flagged prior to the meeting, the move was largely anticipated by the markets. The vote was unanimous (9-0), contrary to expectations for a split vote. However, it is difficult to extract a clearly hawkish sign for future meetings. We continue to anticipate one rate hike per year, with the next rate hike expected in May 2019.

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  • World – Macroeconomic Scenario for 2018-2019: The end is not yet nigh

    Edition July 10, 2018

    In the Eurozone, the economic slowdown in Q118 has raised a number of questions, often met by overly pessimistic, even alarmist, responses. However, the shock, which can be put down to relatively sluggish exports, does not signal an early end to the growth cycle. There are no crippling constraints on supply, particularly when it comes to the workforce: labour tensions will not derail growth. Growth is subsiding and is coming under threat from external factors, with the tightening of US monetary policy less worrying than the risk of a trade war escalation. In light of the likely retaliation by the US's trading partners (though they would have to be moderate, given the losses such retaliation would entail for the countries concerned), it would be overambitious to put a figure on the potential cost of a war that has yet to take shape fully. A trade war would obviously hamper growth. However, even now, before any escalation has occurred, the potential damage to confidence and the ensuing adverse effect on investment decisions is a real cause for concern, in our view.

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  • Europe – Foreign trade – Trade war: the price to be paid

    Edition May 2018

    The announcements concerning the Trump administration's trade policy present a serious challenge for the European Union. If it fails to bring the US back to the WTO's negotiating table, the European Union could either enter into bilateral negotiations, or lodge a complaint with the WTO in order to obtain compensation. Both options carry a cost, be it having to renounce multilateralism, or face an escalation of the trade conflict with the US.

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  • France – Stability Programme 2018 : Public deficit narrowing faster than expected

    Edition April 24, 2018

    In mid-April, the French government presented its "Stability Programme" for 2018-2022. The document describes its public finance strategy over that period. The public deficit is narrowing more rapidly than expected. Reduced to 2.6% of GDP in 2017, it is forecast to reach 2.3% in 2018. Following a slight increase in 2019, to 2.4%, due to switching the CICE to a reduction in employer social contributions, it is expected to continue shrinking, with a small surplus forecast for 2022. The public debt ratio is expected to gradually fall.

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  • World - Macroeconomic Scenario for 2018-2019: When it comes to growth, better may prove to be the enemy of good

    Edition April 4, 2018

    In the Eurozone, the recovery phase, accompanied by its share of nice surprises, is now behind us and the economy is settling into its growth phase. The sometimes disappointing findings of the surveys are not flagging up a cyclical reversal, but its natural slowdown. They reflect nothing more than expectations adapting to reality. The confidence of economic agents has become more consistent, thanks to the strength of developments in the real economy. The strength of the fundamentals suggests further sustained growth rates, of close to 2.4% in 2018 and 2.1% in 2019, with no significant pick-up in inflation. Thus, there is no threat of a monetary emergency and the ECB's monetary policy should very gradually become less accommodative.

    The emerging world should see stable growth of around 4.7% in 2018 – satisfactory without setting pulses racing.

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