Economic Weekly: Views from Paris

The complete document in pdf format is available here
Economic Weekly-NatixisAM-02-16-2015

Key element of the week starting February 9

The major point this week was on GDP growth in the Euro Area.
GDP was up by 0.3% (1.4% at annual rate (AR)) for the last quarter of 2014. For the whole year, growth was 0.9% and carry-over for 2015 at the end of 2014 is 0.35%

There are four groups of countries plus Greece. The first one contains countries where the level of activity is above the pre-crisis level: Germany, Belgium, Austria and France. German growth was +0.7% in the 4th quarter (2.8% AR) and 1.6% in 2014. In France, GDP was up by 0.1% (0.3% AR) in the fourth quarter and 0.4% for 2014. In Belgium growth was +0.1% (0.4% AR) and +1% for 2014 and in Austria numbers were +0.1% (0.4% AR) and 0.3% for 2014.
The Euro Area and Netherlands are in a catch-up zone, below the GDP pre-crisis level. In the Netherlands, GDP was up by 0.5% in the last quarter of 2014 (2% AR) and 0.8% for 2014.
In Spain and Portugal, the rebound is spectacular. GDP was up 0.7% (2.8%AR) and 0.5% (2% AR) respectively in the fourth quarter and 1.4% and 0.9% for 2014.
The Spanish GDP level is now above Finnish GDP regarding the pre-crisis level as a reference. Finland is in its third year of recession.
The fourth group is for Italy where GDP growth was 0% in the fourth quarter and -0.4% for 2014.
Greece is outside the classification as it GDP is down by more than 25% compared to the pre-crisis level. In the fourth quarter GDP was down by -0.2% (-0.8% AR) but for the whole year and for the first time since 2007 growth was positive at 1%
ea-2014-q4-gdpOther Important Issues
The other important point is what has happened in Sweden where the Central Bank has pushed down its repo rate into negative territory at -0.1%. The Riksbank has explained its move by the long lasting deflation seen in Sweden. Beside this measure and to fight it the Bank has announced that it will purchase government bonds for SEK 10bn.
In fact, Sweden as Denmark and Switzerland are constrained by the ECB strategy to keep its interest rates at the Zero Lower bound for an extended period. These countries must avoid an appreciation of their currency and must adopt a very accommodative monetary strategy
Mark Carney the Bank of England Governor said that interest rates could converge to 0 as the inflation rate will turn negative in 2015. He is persuaded that the next move will be a liftoff but….. A negative inflation rate and weak core inflation can change landmarks.
Retail sales were down by -0.8% in the USA in January. A lower gas price is an important explanation of this drop. Ex gasoline, retail sales change was 0%. Without auto sales and gas, core retail sales were up by 0.2%. It’s low but not alarming.
The Chinese inflation rate is trending downward to 0.8% in January from 1.5% in December. There is a role for lower energy prices but internal demand doesn’t create pressures and that’s worrisome
— The Japanese GDP was up by 0.6% (2.2% AR) in the fourth quarter. In 2014 GDP growth was null
— The industrial production index was stable in December for the Euro area and up by 1% (at AR) for the last quarter. In France, industrial production was up by 1.5% in December but down by -1.75% in Q4
— In Greece, the February 11 meeting was a failure as was the next meeting the 16, next Friday 20

What will happen this coming week?
— First surveys for February with the ZEW in Germany (Tuesday) and the flash estimate for the Markit survey in China, Japan, Euro Area, Germany, France and the USA (Friday)
— Inflation rate in France – It will drop in negative territory (Thursday)
— Inflation (Tuesday), employment (Wednesday), retail sales (Thursday) in the United Kingdom
— Industrial production and housing starts in the USA (Wednesday)

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