After the referendum on June. 23, 2016, the British economy has followed a lower profile. This comes from changes in expectations: uncertainty about Brexit rules has created a wait and see behavior and opportunities in other countries have changed people and companies’ mind about investing in the UK.
Therefore the economic trend has changed. We can see that in the graph below. The trend from the start of the recovery in 2013 to the second quarter of 2016 has been extended to the first quarter of 2018. There is a widening gap between real GDP measured by the ONS and the pre-Brexit trend. It the cost of Brexit for the UK. We see a real change after the referendum. Continue reading
During the first quarter, growth was robust in the US and in Spain, slightly lower than expected in France and weaker than anticipated in the United Kingdom.
The first graph shows the GDP quarterly change since 2015, the annual average growth for the last 3 years and the carryover growth for 2018 at the end of the first quarter.
The US growth was, for the first quarter, at the same level than the 2017 average at 2.3% Nevertheless, the figure is slightly lower than the last three quarters of 2017. The impact of the strong fiscal policy is not seen yet in these numbers. The carry over growth for 2018 is at 1.7%.
The 2.2% trend seen since the beginning of 2011 is still the framework for the US growth dynamics. (see the graph on the French version of this post)
In Spain, growth figures are strong since the beginning of 2014 even if the momentum has been a little lower for the last three quarters. The trend is almost linear at 3.2% since 2014. The carryover growth for 2018 is 1.8%
In France, growth was just 0.3% (non annualized) after 0.7% during the last 3 months of 2017. In fact the first quarter figure is just a correction after the 2017 non-sustainable path for the French economy. The current trend (since 2013) is 1.3% for France, therefore 2% was too much to be sustainable. I maintain my growth forecast at 2%.
The carryover growth for 2018 is 1.2% at the end of the first quarter.
In the UK, the trend is clearly weaker since the Brexit referendum. The second graph shows the real GDP level and the trend calculated from 2014 to Q2 2016 (the referendum was on June 23). We see that there is a huge and enlarging gap between the trend and the real GDP profile. It is the cost associated with the Brexit decision. There is no reason to see a reversal in this gap. The carryover growth for 2018 is 0.7%.
French growth slows in Q1 2018 with + 0.3% (non annualized) vs. 0.7% in Q4 2017. Carryover growth for 2018 is 1.2%.
Explanation : a more limited dynamics of business investment and a marginal contraction of exports. This is consistent with the inflection seen recently in the surveys.
My expectations for 2018 is 0.4% on average per quarter. The first quarter is consistent with this. The main point to look at will be surveys during this spring. But April was not a good start. See here
Wait and see attitude of the #ECB in the management of its monetary policy. This is a sequel of the cyclical inflection observed since the beginning of the year. Is it permanent or temporary? The answer to this question is essential but it is still discussed by economists.
The ECB does not show a strong will to quickly change its strategy. That’s why we should not be surprised if asset purchases continue beyond the date of September 2018. The central bank is supposed to stop buying assets if the inflation trajectory is consistent with the monetary authorities’ expectations. This will probably not be the case. Moreover, by not creating the idea of a rapid break, the ECB should allow the euro to depreciate against the greenback. This would have a stabilizing effect on the eurozone economic outlook. This is all the more likely as the Fed will be much more active in countering the destabilizing effects of Donald Trump’s fiscal policy.
World growth stepped up a pace in 2017 as a result of a policy mix that was heavily on the side of demand, while effective monetary accommodation worldwide combined with loose fiscal policy to further drive this recovery.
This extra demand had a positive impact on manufacturing activity in particular, leading to a recovery in world trade.
This upswing turned the trend around in the sector in the euro area as well as in France, where job trends displayed a shift, stabilizing and even improving in 2017 after several years on a downtrend, if we include temporary employment in the sector. There was also a knock-on effect on services, pushing up overall activity overall.
This simple graph from the Wall Street Journal is just a measure of the constraints that have been imposed to Greece since the beginning of their adjustment. The US depression is just small potatoes compared to Greece.
How many years will be needed for the Greek people to come back to their pre-crisis level? At a 2% growth rate per year it would take about 15 years. In other words, the time for adjustment is around 25 years. This is a generation. Continue reading
Economists said after the referendum on Brexit that a temporary spike in the inflation rate could be expected due notably to the British currency depreciation.
That’s what has happened with a peak in November 2017 at 3.1%. After this date, the inflation rate is receding at less than 2.5% in March 2018. The core inflation rate has followed the same profile with a current rate at less than 2.3%.