A historical recession (The « green shoots »)

The global economy is experiencing the deepest and longest recession seen since the Second World War. This is because the recession is synchronised and because it has been accompanied by a financial crisis. Fundamentally speaking, it has been caused by the purging of the global imbalances that have accumulated over the past 15 years. As […]

Should we fear inflation?

The increase in long-term interest rates observed during spring is normal. It results from both the expectation of high government debts, and the fact that we are pulling out of a period of extreme risk aversion and signs of a cyclical upswing have appeared. At this level, these rates do not point to inflation spinning […]

EMU burst: don’t dream

Greece and Spain have just had their credit ratings downgraded, while Ireland and Italy have been put on a negative credit watch. Sovereign debt spreads, which were extremely (abnormally?) low following their adoption at the euro, were evidence of the lack of discrimination concerning risk. Spreads have widened considerably, especially in the last few months, […]

No stabilisation of the cycle before the second half of 2009

We repeatedly underlined our scepticism regarding both the decoupling story and the idea that the financial crisis would come rapidly to an end. Decoupling was hard to imagine. When the economic indicators of the OECD countries were pointing to a very strong moderation in activity, the rest of the globe could hardly be unaffected as its potential for exports was shrinking. The end of the financial crisis was equally difficult to imagine as long as the inventories kept exerting a downward pressure on house prices in the US and consequently kept inflating defaults.

From financial crisis to recession

In the euro zone, after GDP contracted in the second quarter, all business surveys pointed to recession, even before the crisis escalated in mid-September. Activity is likely to contract until mid-2009. GDP will struggle to reach more than 1% this year versus 2.6% in 2007, and will decline by 0.3% in 2009. The PMI manufacturing index, having dropped below 50 (boundary between expansion and contraction) in June, fell to 47.6 in August and then 45 in September. All activity linked components were down sharply, production to 44.1 from 47.6 in August and orders to 41.7 from 44.6. All the main euro zone economies were affected, with Germany down to 47.4 from 49.7 the previous month, France to 43 from 45.8, Italy to 44.4 from 47.1 and Spain to 38.3 from 42.4. The services PMI held up better at 48.4 in September versus 48.5 in August. It was just over 50 in Germany and France (50.2 and 50.1 respectively), just under 50 in Italy (49.4), but was very low in Spain (36.1). The composite PMI, having dropped below 50 (boundary between expansion and contraction) in June, fell to 48.2 in August and then 46.9 in September.

The European Commission’s monthly survey bears out this analysis, with the economic sentiment indicator down 10 points in four months (87.7 in September versus 88.5 in August and 97.6 in May).

Eurozone: Inflation, the guest we could have done without

There is no inflation in Europe, just a rise in energy and food prices that should be analysed as an exogenous shock that monetary policy is unable to counter. Fears over second-round effects, i.e. salary adjustments in reaction to the rise prices, are baseless. The abundance of labour in the world is holding back salary […]

Euro zone public finances: an increasingly complex exercice

Growth and deficit forecasts are provisional for the time being. Where necessary, updates will be issued, along with brief comments, after the next Global Outlook meeting. Coming out of 2007, public finances in the euro zone were in a relatively healthy state. Expressed as a percentage of GDP, the overall public sector deficit shrank from […]

Are eurozone economies converging?

The Single Monetary Market in 1993 and successively the advent of the European Monetary Union (EMU) in 1999 constitute two significant institutional changes that should have affected economic activity in member countries. This study investigates the extent to which growth rate dispersion has changed during the last few years and whether business cycle synchronisation has […]

Did you say “decoupling”?

The eurozone does not seem to be exposed to the risk of recession. It does not make subprime loans. Only Spain and Ireland have been hit by the downturn in house prices. Unemployment continues to ebb, ensuring some resilience in terms of consumption, and corporate balance sheets are generally healthy. Yet it is difficult to […]

Higher education and growth

Higher education has been a key issue in recent public debates in France. Topics have ranged from the mediocre results of research to the excessive development of branches with few hiring opportunities, a “selection by failure” system rather than one based on better career counselling, and the problems of governance. Another hot topic is the […]