The clock is ticking for Europe
Last week saw a second landslide rejection of the Prime Minister Theresa May’s Brexit deal, and as we head to press, uncertainty remains high. May’s strategy of essentially running down the clock in a bid to secure her deal has again failed at a high cost to the British economy, and to the rest of Europe.
The fear of “no game in town”
Will 2019 see the start of a recession? Consensus says no, but the financial market slump in December shows that investors are now demanding higher risk premia. To our minds, this is not so much a reflection of changing real economic fundamentals but rather a deeper-rooted concern that we are shifting from the situation where central banks were “the only game in town” to one with “no game in town”.
How would a 'Hard Brexit' affect the U.K. economy?
Michala Marcussen, group chief economist at Societe Generale, talks about the Brexit negotiations and the implications for the British economy. She speaks with Manus Cranny and Yousef Gamal El-Din on "Bloomberg Daybreak: Middle East."
The paradox of uncertainty
A certain level of uncertainty is part of life, and insurance (both private and public) and precautionary savings help manage this so that we can go about our lives unabated. At times, however, uncertainty increases well beyond these levels, often driven by political events. Faced with such uncertainty shocks, business managers will often freeze new investment and hiring decisions, while consumers delay spending on big ticket items such as cars or the purchase of a new home.
Bitcoins, cash and tulips
Bitcoins generated much excitement in 2017, starting off the year valued at just over $1 000 per bitcoin and closing the year at around $10 000, having peaked at close to $19 000 in mid-December 2017. While the extreme volatility of Bitcoin generates both spectacular gains and devastating losses, it significantly reduces the ability of the crypto-currency to serve as a means of payment; the purpose for which it was originally designed. Michala Marcussen, Group Chief Economist, explains the latest trends around the bitcoin.
The winners and losers of the robot revolution
The age of automation promises growth in production but also heralds a widening of inequalities, with low and medium-skilled workers on one side and highly-skilled, increasingly well-paid workers on the other. Furthermore, the rise in capital stock that is inherent to automation is set to widen the inequality gap further, given that capital ownership is more unevenly distributed than labour income.
Past the peak on growth and rates
The global expansion has lost steam after reaching a peak in 2017. International trade and manufacturing output have slowed amidst weaker demand from China. Political uncertainty (Brexit, US-China trade talks, pace of economic reform in the euro area) mark an additional headwind. The forward guidance from the Fed and the ECB has shifted to a more dovish tone and stock market have rebounded so far in 2019. Yet, fixed-income markets price now weak growth and low inflation for long. Rising unit labour costs in Europe and tighter labour markets in the US could still lead to inflationary surprises and a near-term correction on bond yields could prove a source of financial volatility.
Monetary policies: what is the endgame?
Upon the conclusion of its monetary committee meeting on 29 and 30 January, the US Federal Reserve (Fed) marked a pause in the cycle of raising its key rates that it had initiated in December 2015. The question of the irreversibility of ultra-expansionary monetary policies is particularly acute in these times of a global economic slowdown.
Can the euro challenge “King Dollar”?
In his State of the Union speech in Strasbourg on 12 September, European Commission President Jean-Claude Juncker announced that proposals would be presented before the end of year aimed at “strengthening the international role” of the euro against the dollar. “It is absurd, he lamented, that European companies buy European planes in dollars and not in euros“. But does the euro have the means to challenge the hegemony of the dollar?
Italy’s Fiscal Multiplier Trap
The impact of discretionary fiscal policy on economic growth is an ongoing topic of debate, and not least these days between Brussels and Rome. Weighing up the different mechanisms at work, we find that the multiplier on fiscal expansion in Italy today is below the levels needed to bring down the debt-to-GDP ratio. Conversely, should the Italian government switch the fiscal lever to austerity, we are concerned that this too could prove self-defeating. In a nutshell, Italy seems caught in a “fiscal multiplier trap”. Breaking out of this requires a much stronger focus on growth boosting structural reforms.
Monetary Policy: back to normal?
The 2008 financial crisis witnessed unprecedented policy responses from the world’s major central banks. Main central banks cut their policy rate to near 0%, exhausting the conventional monetary options. Then, to further ease financial conditions, they started to design a variety of unorthodox monetary policy tools commonly labelled as “unconventional monetary policies”. These have included “lower-for-longer” forward guidance on the short-term rate, large-scale asset purchases, large-scale liquidity provis.