GDP, Employment and Productivity in the Euro Area

Employment increased in the euro area during the first quarter (+ 1.4% annualized). The pace of job creations is solid. However, since the beginning of 2018, productivity has lost momentum and it doesn’t improve. GDP is not growing fast enough in the face of rising employment.
The risk is that an external shock from, for example, global trade will penalize activity with after that a quick adjustment on employment. The economy does not create leeway (no productivity gains) that may cushion negative shocks. That’s worrisome.

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

macro2pager-interestrate

The UK low productivity momentum: the real issue

John van Reenen, a professor of economics at the Massachusets Institute of Technology, said if the UK could not boost productivity growth, wages would not increase, tax receipts would not rise and austerity would continue. “Not very nice,” he added.

Read here the FT article https://www.ft.com/content/32ba93b0-8dcf-11e8-bb8f-a6a2f7bca546

Jobs and the machine

As long ago as 1984, in his Paths to Paradise, André Gorz, a self-proclaimed “revolutionary-reformist” stated, baldly, that the “micro-economic revolution heralds the abolition of work”. He even argued that “waged work . . . may cease to be a central preoccupation by the end of the century”. His timing was wrong. But serious analysts think he was directionally right. So what might a world of intelligent machines mean for humanity? Will human beings become as economically irrelevant as horses? If so, what will happen to our individual self-worth and the organisation of our societies?

Read this article from Martin Wolf

www.ft.com/content/02d486ba-ecc1-11e7-8713-513b1d7ca85a

Six major changes since the financial crisis – My Monday column

Developed countries’ economies were enjoying robust growth in the first half of 2008, despite some initial cracks that had been appearing since the previous summer. That was ten years ago, and since then, world economic dynamics have transformed completely, as the sources of momentum and adjustment systems have changed, especially in developed countries.

We could potentially identify a whole raft of differences but I have focused on six that I feel are useful in helping us understand the new world economic order.

1 – World trade is no longer growing at the same pace

World trade has entirely changed pace since the crisis in 2008. Before that date, it fluctuated fairly broadly around a trend estimated at 6.8% per year in volume terms, thereby creating a strong source of momentum in each economy and driving economic growth, with an overall virtuous dynamic between trade and economic activity.
But since 2011, world trade has seen little fluctuation and the trend is now at 2.3%. The turning point in 2011 can be attributed to austerity policies and in particular programs implemented in Europe. So momentum that can be expected across the rest of the world is no longer on a par with past showings. This change is significant for Europe as the continent used to wait for the rest of the world to pick up a pace before staging its own improvement, and this explains the systematic time lag in the cycle between the US, which traditionally recovered very sharply after a negative shock, and Europe, which always seemed to be lagging slightly. Continue reading

The new French president and growth at 1%

This is my weekly column for Forbes.fr. The French version is available here

The new French president will have to deal with an economy that is growing at a spontaneous rate of close to 1%, which is the average figure observed since the start of 2013. The new leader’s challenge will be to break with this trend on a sustainable basis, in order to create enough jobs to cut back unemployment and generate additional revenues to finance the social welfare system more effectively and more comprehensively.

Each candidate is of course fairly optimistic on the projected growth profile, expecting the average figure to be slightly under 2% in 2021/2022: in the space of five years, the new president therefore thinks that he/she could almost double the French economy’s growth rate. This is highly ambitious.
Judging by the growth profiles expected by the various candidates, the financial crisis, which has been going on for almost 10 years, will only have had a temporary impact as the economy could converge towards its pre-crisis trend by the end of the president’s forthcoming five-year term. This analysis is mistaken: the French economy has been permanently marked by this crisis. Like most western economies, it has suffered severe and persistent shocks that hampered its growth momentum. The US, the UK and other countries are witnessing a similar situation. Sluggish growth is not an exclusively French phenomenon and other countries are also taking a long time to find a way to return to pre-crisis growth levels.

France-2016-Q4-GDPLevel
In view of French economic figures, candidates’ projections display considerable determination on their part, as the economy is not spontaneously converging towards 2%. Continue reading

Mario Draghi and the technological change

In a recent speech, March the 13th, Mario Draghi the ECB president explains the link between monetary policy and technological changes perceived as sources of productivity improvements.
This might at first glance seem an unusual topic for a central bank conference, since monetary policy principally operates through the demand side of the economy. But the long-term supply picture evidently also affects our ability to deliver on our mandate.
Much of the debate today about the true level of the real equilibrium interest rate, for example, is a debate about the outlook for productivity growth, which of course depends in large part on innovation and entrepreneurship. Higher productivity growth is also vital to safeguard Europe’s economic model of high wages and social protection, and hence to counter the sense of economic insecurity that is currently prevalent in several advanced economies.

Read the speech here