France – GDP growth at 1.9% in 2017

The French GDP growth in 2017 has accelerated to 1.9% on average after 1.1% in 2016. The quarterly sequence of the GDP expansion was steady at 0.6% per quarter except 0.5% in the third quarter.
The carryover growth for 2018 at the end of 2017 is 0.9% which slightly higher than a year ago. At the end of 2016 it was at 0.4% for 2017. The effort that has to be done to converge to 2% in 2018 on average will be lower than in 2017. It is just a 0.42% increase per quarter (versus 0.58% in 2017).
The very positive part of the fourth quarter report was the strength of corporate investment.

The government budget for 2018 has been defined with a 1.7% growth (or 0.33% per quarter). This means that we can expect higher receipts compared to what was forecasted. The government credibility will be measured by its ability to use these extra receipts to reduce expenditures not to increase them. In the past these type of temporary receipts were systematically spent in permanent expenditures leading to a persistent budget deficit. We can expect a different strategy from the president Macron.

A reduction in expenditures and therefore lower demand would be consistent with what we currently perceive on the business cycle. A recent survey has shown that it was quite impossible for companies to increase their production. The production capacity utilization rate is at a peak, production bottlenecks are growing and there are difficulties in hiring.
With these constraints in mind, a boost in demand through higher government expenditures would be a mistake. The target is to reduce these constraints through incentives on investment (through public investment) and education. That will be the main government task in 2018.

The graph below shows that the current growth trend is slightly lower than before the 2008 crisis. It means that there will be no catching up and that the cost of the crisis is permanent. The gap between the current GDP level and the trend from 2000 to 2008 is -8%. The GDP level would have been 8% higher without the crisis. This is quite big and this gap will widen in coming years as I do not expect a catchup of growth.
FR-2017-Q4-GDPTrend.png

The Euro Area growth in perspective

The GDP growth figure was 1.7% in 2016 for the Euro Area. It is interesting to compare this performance to other large countries in the world. Four graphs can give landmarks on the relative robustness of the Euro Area compared to its main partners and competitors.
In an absolute measure, it is far from having the best performance but since the crisis growth trends have changed. The gap between the current GDP level and the pre-crisis trend is larger in the US and in the United Kingdom than in the Euro Area. This latter felt but from a lower point than the anglo-saxons countries. The detail of the Euro Area is still problematic as momentums of Italy, Portugal and Greece are still far from what is observed elsewhere. Continue reading

The German Growth in 3 graphs

The GDP growth was 1.7% (at annual rate) during the fourth quarter of 2016.It was a mere 0.4% in the third quarter. For 2016 GDP was up 1.8% after 1.5% in 2015.
The carry over growth for 2017 at the end of 2016 is 0.5%. It was the same number at the end of 2015 for 2016.
Domestic demand is currently the main support for growth with a high contribution from government expenditures. Since the first quarter of 2015, GDP growth is +1.5% on average and the government expenditures’ contribution is +0.7%; Almost half of it, that’s a large number (data until Q3 2016, the detail for Q4 is not available yet).
Construction is also an important contributor.
Government expenditures and construction are the German response to the refugees’ crisis, leading to a more autonomous .growth. Net exports have a negative contribution (imports were up due to a robust domestic demand).
Growth in Germany follows now a more autonomous and centered growth framework. It has a positive and persistent impact of the Euro Area growth.

The first graph shows the stability of the German business cycle. There is no break in the crisis contrary to what was seen in every other developed country. This reflects the absence of rupture in the private domestic demand. (The break in 2008 is mainly associated with external trade in Germany)
germany-2016-q4-gdptrend

The second graph shows the cumulated contributions of different sources of demand to GDP growth. On the right part of the graph we see that the main sources of growth are the private demand and government expenditures. Since 2013, the net exports contribution is almost neutral (no upward trend).
This support from domestic demand is a source of improvement for the Eurozone
germany-2016-q4-gdp-contrib-lt
The third graph is the government expenditures’ quarterly contribution to GDP growth since 2015. On average GDP growth was 1.5% and the contribution was 0.7%.
germany-2016-q4-gdp-gvycontrib

Euro Area GDP growth: Positive signals for 2017

The GDP growth momentum was stronger at the end of 2016. The GDP growth rate was at 2% (annual rate) for the last three months after 1.75% for the third quarter.
For 2016, the GDP growth was on average at 1.7% after 1.9% in 2015. The carry over growth at the end of 2016 for 2017 is positive at 0.7%. It is the highest figure since 2010. It means that the new year is starting well. The 0.7% means that with GDP growth at 0% for every quarter of 2017, the average growth rate for 2017 would be 0.7%. We see that in 2011 (for 2012) and 2012 (for 2013) the carry over was negative. It was almost impossible to catch up and to converge to a positive growth. This was the impact of austerity policies in the Euro Area. Continue reading

Catch up and more balanced growth in the US

GDP growth was at 2.9% in the third quarter after 1.4% during spring. The carry over growth for 2016 at the end of the third quarter is 1.4%. Growth for the whole year can now be expected at 1.6%.
During the third quarter we’ve seen a catch up that partly compensate the weak figure of the second quarter.
This doesn’t create pressures that could push the Fed to act rapidly. It will do nothing during its next meeting(next week) and we still anticipate a 25bp hike during the December FOMC meeting. The trend in the economy is not strong enough to imagine a rapid pace of increase from the Fed. We think that the Fed will give minimum guidances for what it will do in 2017 in order to limit crazy expectations (remember the beginning of 2016).
usa-2016-Q3-GDP-comp.png
We see on the following graph that the GDP trend is around 2.1% in this cycle which way below what was seen before the crisis. This cycle is the worst since WWII and that’s an important reason not to act too rapidly.
usa-2016-q3-gdptrend.png
usa-2016-q3-cucle-gdp-comp.png

The composition of the GDP is interesting. The graph shows contributions to GDP growth.
We see that internal demand is almost stable and that’s the main source of growth. But we see that this doesn’t reflect in a strong momentum for the GDP. That’s why the increase in investment in infrastructure is interesting. it could create incentives for private productive investments boosting growth. This could help to exit the risk of secular stagnation
usa-2016-q3-gdp-contrib.