The Macro 2 pagers – Low interest rates for a long time

The Macro 2 pager explains how the interest rates profile will remain low for an extended time. 
The central banks’ stimulus after the 2008 crisis has been caught up by an economy whose characteristics have changed and which can now accommodate only low rates thus conditioning the behavior of central banks.

The Macro 2 Pager – Interest Rates


Huawei vs America

Look at this map. Who then can expect a trade deal between China and the USl The real question is about techno leadership? Huawei has a step ahead of the US.

The Chinese company already has deep discussions with many countries throughout the world. From Asia to Europe, Africa and Latin America the Chinese web is already impressive. On the other side, the US has forbidden purchases of infrastructures coming from Huawei. Australia, New Zélande, Japan and Taiwan follow the same rule. But it is a minority.

Recently, the US has generate pressure on Germany to forbid the German to buy Huawei products in the renewal of their mobile network. Germany has not changed its mind and has allowed Huawei to compete.
The balance of strength at the global level may change rapidly at the expense of the US.

How to expect an agreement that would validate the dominance of one over the other? From China to the US?

Are we heading for a new era of nationalizations?

The Dutch government has just shelled out $775million and is now the proud owner of close to 13% of the Air France – KLM group, reflecting its determination to get back on an equal footing with the French government in the airline group. The Dutch government felt that KLM had recently been badly treated within the group when the new chairman was appointed…and the battle of wills is even more fierce and surprising when we realize that the Netherlands took its stake without informing the French government. More recently, Bloomberg announced the possible renationalization of EDF with the aim of better managing this strategic energy business in France, while Germany is willing to bail out Deutsche Bank if the bank gets into severe trouble.

There is very clearly a shift in government policy on the state’s role in companies’ shareholder structures, with a feeling of the re-emergence of the State as strategist. This idea had somewhat disappeared from our textbooks, but now seems to be coming back to the fore.

Over recent years, nationalizations have usually been temporary. This was the case for General Motors in the USA in 2009, as well as for UK banks at the height of the financial crisis. There is also the example of STX in France, and the matter is on the table again with Ford and Ascoval.

Globalization is no longer seen as the systematic solution

Globalization was set against a backdrop of an open world over the past twenty years, with resources allocated efficiently. This worked well as developing countries focused on industry, especially Asia, while developed countries concentrated on services and the intellectual resources required to supply the industrial sector. This allocation of resources can be immensely effective if all participants play by the rules and if each country feels it is benefiting from the arrangement.

One reason behind this change currently under way is that the world economy is no longer seen as cooperative. At the time of the Brexit referendum, the UK indicated that it would be better off outside the European framework than within, while at the same time elsewhere in the world, Trump and Xi Jinping are building a bilateral rather than a multilateral system.

This new world order does not fit with the globalization trend witnessed in a recent past. Trump has taken a more isolationist path than his predecessors, throwing a spanner in the mechanisms of globalization with his border duties and threats. In China, the Belt and Road Initiative demonstrates the country’s determination to build its own trade routes and set its own terms and conditions.

Against this backdrop, previous trends to globalization are changing, and if all participants no longer play by the joint rules of the game, then each country is free to make up its own. This could well be what is happening right now.

Growth is too sluggish

Alongside this explanation, there is also the issue of sluggish growth on developed markets. Some countries want to take matters into their own hands and set their economy back on a stronger trend, and each country wants to be able to do what it takes to get ahead. KLM’s move fits with this approach, as the Dutch government felt it was being excluded from decisions on its own airline KLM, which could potentially be bad for jobs and the Schiphol airport hub in Amsterdam.

Weaker productivity gains and shock on world trade My weekly column

The tricky economic outlook in developed markets is the result of a shock on economic activity due to a sharp slowdown in world trade, combined with insufficient productivity growth to trigger a swift recovery in economic activity. The risk of a long-lasting shock hampering both activity and the labor market is particularly high, as economic policy has little leeway to cushion these shocks and spread the cost out over time.

The decline in productivity gains is a real source of concern, especially for developed economies. In short, productivity is the surplus created by the production process, so when we talk about the production process, one plus one makes a little bit more than two: this “little bit more” equates to productivity gains. Depending on the time period and the efficiency of the production set-up, this “little bit more” can vary in size. In the past, productivity gains were vast, with growth of 5.8% per year in France on average in the 1960s, and this led to a downtrend in working time, an increase in wages and the implementation of an effective social security system (productivity gains = increase in production per hour worked in volume terms). The higher this surplus, the greater the production system’s leeway to redistribute these gains to all citizens.

Due to the very nature of the process, these gains drive self-sustaining momentum that helps cushion shocks and swiftly sets an economy back on the track to growth and jobs. The higher the gains, the more readily the economy can recover quickly and on a broad scale.

The current period since the crisis in 2008 has been characterized by a clear slowdown in production per hour worked across all developed countries. This is shown in the table below, which outlines average annual productivity growth across three time periods: an extended period between 1990 and 2007, the period since the US recovery in 2009 and the phase since the recovery in Europe in 2013.