Concerns and uncertainties on
world economic activity having been gathering pace since the fall. The swift decline
in world trade reflects this change in pace, moving into the red with a
contraction of 0.4% in January vs. yoy growth of 4% in September 2018. This turnaround has triggered
concern from the OECD and the ECB, prompting them to slice back growth
projections for the euro area in particular.
The very heart of this economic
question is whether this shock is permanent and persistent, and in this respect,
there are two interrelated questions worth noting, as well as another third
The first point is the political
explanation for this downturn. Trade tariffs applied by the White House have
shifted the balance of trade between the US and China, leading to a swift slowdown
in trade in Asia since the start of the fall and acting as the main
contributing factor behind the decline in world trade as a whole. By targeting
China directly, Donald Trump is actually damaging the entire region.
The other aspect is the
uncertainty triggered by the White House’s political choices, as doubts on
trade following border tariffs are further heightened by the threat of fresh
trade moves. A case in point is the German automotive sector, which could be
hampered by a border tax of 25%, as the US threatens to impose tariffs on $11bn
in European exports to the US in retaliation for European subsidies to Airbus. The
WTO will have the final say, but there is also a further threat as Boeing is
now struggling with recent problems on its 737 Max.
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. Continue reading
Corporate surveys in November show that the pace of growth is still accelerating in the Euro Area. This can be seen at the global level but also in every sector, notably in the manufacturing sector where the stronger momentum is consistent with a higher international trade dynamics. Surveys also show that employment is increasing rapidly and that nominal pressures remain limited.
During the first half of 2017, the employment level came back at its pre-crisis peak level. This was already the case for the first quarter but it has been confirmed for the three months to June.
This robust profile in employment reflects a catch up when growth is more robust and with less uncertainty. On the graph we see that the employment profile is smoother than the GDP profile and is clearly in a catch up period.
Since the beginning of the recovery at the beginning of 2013, the Euro Area has added 6.6 million jobs. Continue reading
Synthetic indices on economic activity stabilized in August according to the Markit Survey that was out this morning. These figures are consistent with a 0.5/0.6% GDP growth for the third quarter (non annualized figures).
The employment momentum is still robust but doesn’t accelerate anymore. But the business cycle is still virtuous with a strong momentum in the manufacturing sector. The survey price index stabilized in August. The ECB can maintain its accommodative bias on its monetary policy. The more expansive euro has not yet influenced companies’ behavior.
The notion of temporary exit from the Eurozone is a nonsense. It is just a way for Germany to push Greece out definitely.
Out of the Euro Area and willing to come back implies that a country has to dramatically reduce the imbalances that led to its temporary exit in a environment which will not be the one of the common currency. With its new currency its interest rates would be much higher.
Efforts to be made to satisfy Eurozone criteria would be too important. The temptation would then to make efforts to take advantage of the devaluation of the currency in order to reshape the economy.
In other words a temporary exit is a polite manner for Germany to “fire” Greece definitely. But would Greece be an isolate case or the first of a long list?