> 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 British parliament is undecided. The vote on the possibility of a no deal is very divided. 321 against a no deal but 278 in favor of a lack of agreement to go out. Almost half of the parliamentarians wants a brutal exit from the EU. The idea, supported by many commentators, that it would be enough to abandon the exit procedure because it is not popular is false. What is interesting is that the parliament was very much in favor of the “remain” just after the referendum. It has evolved a lot. This is why a second referendum is in no way a guarantee of a “good vote”. This is the lesson of last night’s vote (Wednesday).
Next step tonight with the vote on the deadline request. It can not run after the start of the next European semester, otherwise the English will have to vote in the elections for the European Parliament. But from now to the end of June, what can we expect again? And will the Commission and the European governments validate this extension for not much? This possible postponement is reminiscent of Madame du Barry asking the executioner December 8, 1793 “One more time Mr. Executioner”. We know that the outcome was fatal.
The Italian situation becomes more complex after the resignation of Prime Minister Guiseppe Conte. The Italian president didn’t validate the government Conte has presented to him.
In this possible government, Salvini, the leader of the League, had the Ministry of the Interior and Di Maio, the 5-star movement’s leader, the Ministry of Labor. These points were recorded.
The stumbling block was the Ministry of Finance, where Paolo Savola, who is very critical of the euro and the construction of Europe, was being approached. Continue reading →
The lull in Italy after Conte’s appointment was short-lived. The 10-year rate is up sharply while the German rate retreats. The spread is increasing. The Salvona hypothesis for finance minister does not satisfy because of the systemic risk associated to him
Giuseppe Conte has been appointed Prime Minister by Italian President Sergio Mattarella. The next step is the formation of the government that will reflect the balance of strength between the 5-star Movement and the League.
1 – Conte is the lowest common denominator between the two parties of the coalition. He will not have much room for maneuver. Continue reading →
After just one year it is still too soon to make a full assessment of the Macron presidency, so the question we must answer is whether the measures taken by his government over this first year are the rights one to tackle the changes we have witnessed worldwide.
In part 1 of this series, I outlined the need to make growth more self-sustaining, even in a context of ongoing globalization. I described the need to raise the innovation aspect in our investment, and the necessity of making the labor market more adaptable to better address change. Recent research by Gilbert Cette et al uses a broad international comparison to suggest that high employment protection legislation in France leads to capital-to-labor substitution. This would explain high investment levels in France. However, the authors note that the innovation component of this investment is inadequate and does not sufficiently bolster productivity. Another conclusion of the report is that a more flexible labor market means higher quality capital.
And this equation lies at the very core of the supply question in France: capital needs to be more efficient, while the labor market needs to be more flexible in its ability to adapt. I noted in part 1 that steps taken to support public investment along with government labor market decrees help ease these restrictions and promote an adjustment in supply.
But we have seen two other watersheds in the world economy that the French economy must now address if it is to further integrate i.e. the location of production and the location of innovation.