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Eco Focus

Eco Focus is an aperiodic publication providing up-to-the-minute analysis of a current topic.

France: reforms gathering pace, but financing is tight

  • ECO Focus – Edition April 17, 2014

    In his general policy statement, the Prime Minister presented the main outlines of his economic programme. He confirmed and emphasised the priority given to reducing production costs for businesses. New support measures for businesses will be added to the CICE competitiveness and employment tax credit and the Responsibility Pact, including tax reductions. The purchasing power of low-income households is also to receive support. Reductions in payroll taxes have been announced.

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No ECB action (yet) despite growing concerns

  • ECO Focus - Edition April 3, 2014

    The ECB defeated our (out-of-consensus) forecast of a rate cut today, choosing not to react to the latest drop in inflation. At the same time, the tone of the press conference was very dovish, with the Governing Council "unanimous in its commitment to using also unconventional instruments in order to cope with risks of too prolonged period of low inflation", including via negative rates, liquidity measures or QE.

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The UK recovery: is this time any different?

  • ECO Focus - Edition March 24, 2014

    Historically, domestic demand, especially household consumption, tends to lead recoveries in the UK. Net trade tends to be a muted contributor, making a major contribution only after exchange rate depreciations. The recent recovery does not escape key historical patterns. It has been driven to a major extent by consumer spending while net trade has been weak. Dwellings investment accounted for around one-tenth of growth last year – higher than its share in the level of output.

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Spain: things are looking up

  • ECO Focus - Edition March 13, 2014

    The recovery is under way in Spain, even if fundamentals remain fragile. GDP is expected to progress by 0.9% in 2014, boasted by a strong carryover effect from end 2013. Survey data has been encouraging since the beginning of the year. The drag from fiscal adjustment and bank sector restructuring will be much less pronounced in 2014.

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ECB: toolbox closed, not locked

  • ECO Focus - Edition March 6, 2014
    The ECB left policy rates unchanged at today's meeting, contrary to our expectation of a small Refi rate cut. No new liquidity measures were announced at this stage. The new staff projections have revealed an inflation profile below target throughout the forecast horizon, at 1.5% on average in 2016, only picking up to 1.7% in Q416. Risks to price stability are still seen as broadly balanced, but the ECB might be in the process of revising its estimate of the output gap lower.

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Winter chill followed by spring growth

  • ECO Focus - Edition March 6, 2014
    Q1 economic growth was hurt by harsh winter weather. A spring rebound will be sustained by improving growth fundamentals. Fiscal and monetary policies will add support to the recovery.

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ECB preview: will they, won't they?

  • ECO Focus - Edition February 28, 2014
    We forecast a small (10bp) cut in the ECB's main refinancing rate next week, but the surprising uptick in Eurozone core inflation in February does increase the risk of a delayed policy response. There remains a tactical case for pre-emptive easing, in our view, as the ECB staff forecasts should reflect downside risks to the medium-term outlook for price stability and March HICP will likely reach new record lows, especially if the EUR remains ‘too strong' for too long.

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The new face of BoE's guidance

  • ECO Focus - Edition February 13, 2014
    As the unemployment rate has approached the 7% threshold, the BoE reassessed the state of the economy alongside its February Quarterly Inflation Report. It confirmed expectations for a continued solid growth outlook going forward, underpinned by the reduction of uncertainty, easier credit conditions and the monetary policy stimulative stance.

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US: Continuity of Fed policy

  • ECO Focus - Edition February 12, 2014
    The general tone of Chair Yellen's semi-annual testimony highlighted the continuity of monetary policy. QE will be phased out in a measured fashion and forward guidance policy remains the focus. Taper on. A high hurdle exists to deviate from continued measured reductions of asset purchases at future meetings. The financial system has been strengthened through regulatory and supervisory actions.

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ECB: another waiting game

  • ECO Focus - Edition February 6, 2014
    The ECB disappointed those expecting monetary easing today, although by merely arguing that not enough information was available our impression is that Draghi is trying to postpone such a decision. On balance, we believe that a March rate cut remains on the agenda.

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