The euro’s exchange rate is the ECB’s main concern, and so forging ahead on its chosen path is understandable

30 octobre 2017 par Véronique Riches-Flores

When, in September, Mario Draghi mentioned the euro exchange rate as one of the factors likely to influence the ECB’s monetary policy – alongside inflation and growth – few economists took him seriously. The euro’s rally since the spring, along with the obvious risk of a further rise if the ECB tightens monetary policy, meant that some caution was needed and made it acceptable to bend the previously established rule that the ECB bore no responsibility for the euro’s exchange rate. Seven weeks later, there no longer seemed to be any concern about this issue. Not only did eurozone economies, posting very good economic figures, appear to have coped with the euro’s rally, but the Fed had also clarified its strategy, reducing the risk of a further rise in the euro. As a result, the ECB was in theory able to relieve itself of the exchange-rate burden and make a more decisive commitment to bring its policy gradually back to normal.

China – The mortgaged future of the world’s biggest economy and the authoritarian temptation

23 octobre 2017 par Véronique Riches-Flores

During the five years of President Xi Jinping’s first term, Chinese economic growth was 7.1% p.a. on average, the lowest of the last 25 years, but the strongest of all emerging markets and even stronger when compared with developed countries. After climbing to first place in the global ranking in 2013, the Chinese economy has only widened the gap with the United States. Its GDP in purchasing power parity terms was 20% greater than that of the US in 2016. China has no lack of first-place distinctions. With more than 18% of the world’s GDP and a population of 1.4 billion, the highest in the world, China has taken first place in many areas as its economy has grown. And it is probably not ready to stop, even if its growth is showing structural decline.

Janet Yellen: a hawk among doves

12 octobre 2017 par Véronique Riches-Flores

Far from confirming the determination to tighten monetary policy shown by Janet Yellen after the Fed’s monetary policy meeting in September, the minutes from the FOMC’s latest meeting show that its members remain highly undecided with respect to ongoing low inflation and the need to raise interest rates further before having confirmation that low inflation is a temporary phenomenon. Fed Chair Janet Yellen is now a hawk within the FOMC, whereas she had previously been a dove: as well as being intriguing, this U-turn creates doubt about the future direction of US monetary policy.

The argument that a weak dollar explains the outperformance of emerging markets is, well, weak

4 septembre 2017 par Véronique Riches-Flores

Since the beginning of the year, the MSCI Emerging Markets has advanced by 25%, and is now flirting with its August 2014 level. This follows two disastrous years during which the index lost up to 30% of its value. Even though it has been amplified by the weak dollar, this performance illustrates how emerging markets have come alive again over the past three months. In local currency, Brazil and Turkey, the most dynamic of them, have risen by 7-12%, while the vast majority of the others—Colombia, China, South Africa, Mexico, Saudi Arabia and Russia—have seen 4-8% rises. In other words, emerging markets have been more or less spared the upheavals affecting the developed world since the middle of the summer. This outperformance is often attributed to the beneficial effects of the decline in the dollar, but the real causes seem more complex. Let’s take a look.

Wage rigidity to low unemployment: an aberration? Not really.

4 juillet 2017 par Véronique Riches-Flores

Central bankers and economists seem baffled by the fact that wages are failing to accelerate in economies where low unemployment is pointing to full employment, which traditionally means rising pressure on wages. In response, central banks are on the alert, fearing that this apparent anomaly will correct itself any time, possibly resulting in a sudden acceleration in pay for which they might be unprepared. In Germany, the unemployment rate is at a post-reunification low of 5.7% and the Bundesbank has been watching this risk closely for almost two years.

Can Abe turn on the fountain of youth?

28 novembre 2014 par Véronique Riches-Flores

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At 17,357 points today, Japan’s flagship index has nearly doubled since Mr. Shinzo Abé took power in late 2012. Among the developed countries, it is by far the best performer. Its performance has been twice as strong as that of the S&P 500 and three times that of the EUROSTOXX 50. The country’s paltry economic performance hardly justifies such a rise. Perhaps the BoJ’s pump priming is to be considered the lone explanation for the rocketing Japanese market, which would be analogous to recognizing that we are merely facing a giant speculative bubble. What factor would justify the Nikkei’s performance? Perhaps the belief that Abenomics has the magical power to combat the primary cause of the Japanese economy’s suffering: the ageing Japanese population?

The ECB’s QE1, five years later, what’s the point?

10 novembre 2014 par Véronique Riches-Flores

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Will Mario Draghi, the President of the ECB, go through with a genuine quantitative easing program as he implied in his press conference on November 6th? It’s possible, especially if euro area inflation continues to fall, as we are predicting in the months to come, under the effect of falling oil prices, in particular. Besides the assurance of bigger and bigger liquidity injections to the financial sector, what impact would a potential QE plan have on the real economy?

The wheels have come off in Germany

10 octobre 2014 par Véronique Riches-Flores

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Business sentiment, orders, manufacturing…the telltale signs of a trend reversal in the German economy are all there: the euro area’s biggest economy is in a downturn.

This might come as news to some observers and we will discuss the primary reasons behind the situation and try to provide answers to the biggest questions raised by the impending downwards revision to German growth forecasts:

– Recession or no recession in the euro area next year?

– Another crisis looming?

– What is the solution?