Brexit after the deal

The Brexit deal takes all its flavor by looking at the situation in Northern Ireland. It will be in the United Kingdom and the single market. The UK will therefore have a border with one of its provinces and Northern Ireland will be in a customs union with the EU. Let’s not doubt that UK products or products going through the UK will not find it very difficult to end up in the single market.

Once again the British get what they want and have an exorbitant power over the European law. The Europeans accept this situation with a smile. Since 1973, discussions and negotiations between the EU and the the UK are usually in favor of the UK. With this deal this also the case. What a scandal. How, under these conditions, can we, one day, imagine a political Europe that does not disintegrate when the pressure is rising?

The deal must now go before the British Parliament. The Conservatives do not have the majority, as this balance of strength of Parliament shows.

What to expect this week (7 October – 13 October 2019)


> The most important data this week will be the industrial production indices in Europe. Germany and Spain (8) and France, Italy and UK (10).
Their momentum will reflect and highlight the risk of recession in Europe as corporate surveys are weak throughout Europe.. Germany has been weak recently and corporate surveys during summer and in September have validated the possibility of a deep recession in Germany.
In Italy, the dynamics remains low and risks are on the downside
In Spain, the momentum is lower since the end of spring. This has forced the Bank of Spain to revised down its forecasts for 2020 and 2021. The industrial figure will show if the downside risk has to be seen as soon as 2019
In the UK, the uncertainty associated with the Brexit leads to lower growth in the industrial sector.
In France, the momentum is still robust

> In Japan, households’ spending in August (8) will be interesting as a VAT rate hike is expected in October.
We remember that after the previous VAT rate hike in April 2014, the impact has been very important and persistent on households’ behavior. It has been depressing at this time. Can we forecast the same dynamics ?

> Jolts survey (9) in the US will probably confirm the change in the labor market trend in the US. That’s already how it is perceived by households.

> Inflation rate in the US with the CPI (10) which has an upside bias when compared to the favored Fed’s measure (PCE). The core inflation rate was at 2.4% in August which is high.

The detailed document is available here

On the GAFA tax and the hostile reaction of the Americans

The reaction of other European countries in this new context of US reaction will be interesting. The new global and multi-polar equilibrium, that is emerging, forces Europeans to be more autonomous. It has already been observed that on the issue of 5G some European countries were not indifferent to Chinese offers, thus taking a distance from the Americans.
Europe must find and define its place in this new multi-polar balance. The GAFA tax and the American reaction can make it possible to define a dynamic specific to Europe with a distance from China and the US. The stakes are high for Europe to exist on a political scale.


Issues on inequality are more and more discussed. These questions were not mentioned when I was a student in the 80’s. They à re now part of the economic discussion at the academic level and elsewhere. Angus Deaton and the Institute for Fiscal Studies (IFS) in the UK have launched a first report on inequality. It can be found here. Deaton gave a speech that explains all the diversity of the term inequality and its consequences.

The quote below is the last paragraph of his speech

“I think that people getting rich is a good thing, especially when it brings prosperity to others. But the other kind of getting rich, “taking” rather than “making,” rent-seeking rather than creating, enriching the few at the expense of the many, taking the free out of free markets, is making a mockery of democracy. In that world, inequality and misery are intimate companions.”

The speech from Angus Deaton launching the IFS report on inequality can be found here

Business investment profile is still worrisome

The pace of capital goods orders in Germany in March suggests a further slowdown in investment in OECD countries over the coming months.
Orders are down 5.9% year-on-year and this indicator is closely correlated with the investment profile of OECD countries.

This slowdown in orders is global.
The rebound in the Euro zone is limited since over a year the decline in orders is still -6.5%. The rest of the world does not look encouraging either.

This is why I have doubts on the investment profile published by INSEE yesterday for the manufacturing sector for France. A 11% growth is expected for 2019 after 0% in 2018. This seems excessive since the survey shows a rapid slowdown in the second half. This means that the first semester has to be very strong. This is not necessarily consistent with what we see in the pace of investment of non-financial companies in the first quarter.
The survey is probably a bit too optimistic. Capital goods orders continue to contract in April 2019. I do not imagine strong investments in France while the rest of the world is rather in an investment slowdown.

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