The ECB will be unable to normalize its monetary policy soon

The ECB will not start the normalization of its monetary policy in 2019. The interest rate level will remain stable, my bet is that the refi rate and the deposit rate will remain at the current level in 2019.
The lack of external impulse, the slower momentum in the manufacturing sector and the convergence of the headline inflation rate to the core inflation rate are three reasons that suggest that the ECB will not take risks in the management of its monetary policy. The monetary policy normalization, even the expectation of it, may weaken economic activity. Therefore it’s not the good policy when the inflation rate is way below the ECB target with no convergence to the target in a foreseeable future.

The framework I have in mind is the following: Due to more heterogeneous behaviors and uncertainty at the political level, global growth will become, in 2019, weaker than in 2017 and in 2018. Inside the Euro Area, there are no coordinated policies that may boost growth, therefore growth trajectories will converge to potential growth. This framework is not a source of monetary policy normalization. But we can add that the dramatic oil price drop in recent weeks (due to excess supply in the US and in Arabia) will push the headline inflation rate to the core inflation rate which has been close to 1% for months. It’s still way below the ECB target and therefore not a source of monetary policy normalization.  Continue reading

The slow transformation of the labor market in France

The unemployment rate is stable in France in the third quarter. It stands at 8.8% for metropolitan France, as it was during spring and at 9.1% when overseas departments are included, again as it was in the second quarter. The pace of the unemployment rate is consistent with that of the economic cycle. Nevertheless, it reacts now a bit faster to the evolution of growth than before the 2008 crisis.
All the indicators suggest that growth is richer in jobs and that it regains some virtue with the increase in full-time work, the rise in fixed-term contracts and the decline in the share of fixed-term contracts.
The labor market is becoming more flexible and it is certainly a positive factor for the dynamics of employment. It is now necessary to improve the training component to further improve this phenomenon by enriching human capital. The aim is to bring down unemployment permanently and move towards full employment. The law passed last summer can contribute to it, it must now be implemented efficiently.
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US jobs and manufacturing activity My Wednesday column

This post is available in pdf format My Wedenesday Column – November 7

US job growth is buoyant, but is it all down to the Trump effect?
The US economy created 250,000 jobs in October, which is a bit higher than the average of 213,000 witnessed since the start of the year. However, October is usually a fairly good month for new job creation, with 271,000 in October 2017, and an average of 246,000 in the month of October since 2013 as compared to an average of 206,000 for other months.
The labor market is buoyant overall, reflecting a solid pace of economic growth although nothing to write home about with 2.25% per year on average since 2011.US jobs Continue reading