MADRID | The Corner | The leading indicators of the manufacturing sector both in Europe and the US will be announced on Monday. China’s indicators showed an economic slowdown of the sector, which could force the government to implement new stimuli measures. Together with the service sector index, which has a bigger impact on the developed economies, these indicators will show -again, two divergent scenarios: 1) the American economy keeps on growing at a good pace after two quarters in which the GDP increased more than 4% on average, 2) the economy of the Eurozone continues its slow expansion, but there is a threat of stagnation, according to experts at Link Securities.
MADRID | By Sean Duffy | The latest economic outlook from the Organisation for Economic Co-operation and Development (OECD) forecasts a bleak outlook for Europe unless action is taken. The Corner asked Piritta Sorsa, Head of EU and Eurozone surveillance at the OECD about the increased sense of urgency, sovereign bond proposals and the necessity for consensus among Eurozone members.
LONDON | By Jim McCormick and Keith Parker (Barclays) | At the start of the year, we analyzed the risks of a prolonged bout of deflation in the euro area (Japan-style deflation in Europe getting harder to dismiss). Our broad conclusion was that the risks of deflation in the euro area were probably not materially different from the risks Japan faced in the mid 1990s. Perhaps more important, we felt investors should picture 1996-97 Japan when assessing the risks of euro area deflation today.
MADRID | The Corner | In a report by Atradius Credit Insurance, they say that the disinflationary trend is visible across the Eurozone, but not all countries are expected to face the same issues. Countries that have a large output gap and those that still have to implement the most reforms will face the highest disinflationary pressure. To create a list of the countries most likely to be impacted, we first select the Eurozone markets that have a budget deficit larger than 3.0%, as these are subject to the Excessive Deficit Procedure which forces them to implement fiscal and structural reform.
MADRID | The Corner | One of the risks of the Spanish economy is the significant lost of dynamism in the Eurozone. The latest data of the balance of trade published on Monday explain such fear. Thus, the Spanish exports registered last September a year-on-year rate of 9.6% (-5.1% from the previous month).
MADRID | By Francisco López | The collapse in the price of raw materials in the last number of weeks is good news for consumers, but very bad news in macroeconomic terms because of the heightened risk of deflation in the eurozone. Oil continues to plummet and a barrel of Brent is now priced at $82, 30%, lower than its June level and is currently trading at a four year low.
MADRID | The Corner | According to CMC Markets’ analysts, “none of this week’s data from Europe has done anything to persuade markets that the European Central Bank won’t ultimately be forced into taking further action to help boost economic growth in the euro area at some point in the next few months.” Be that as it may, the Governing Council of the ECB will meet on Thursday to keep on working on the EZ economic recovery. Experts at Link Securities say that there won’t be any new measures for the monetary policy, although they believe Mr Draghi will announce the possibility of taking new actions to boost growth.
PARIS | Guest post by Francesco Saraceno | Germany has been sitting on the shoulders of the rest of the world economy, and since 2010 it has been followed by the rest of the eurozone that is globally running trade surpluses. I have already said many times that this is a bad (and dangerous) strategy.
SAO PAULO | By Marcus Nunes via Historinhas | Tim Worstall comes out and calls a “spade a spade” in “Europe Doesn’t Have A Debt Crisis, Europe Has A Monetary Crisis”: The stock markets plunge over concerns about the eurozone; there’s a flight from lower quality sovereign bonds; Greek, Spanish and other periphery bond yields spike. It looks like the eurozone debt crisis is back. But this time around we really should get to grips with the fact that what we’ve got here is really not a debt crisis.
MADRID | By JP Marín Arrese | Potential mismatches between overall demand and supply can provide rather upsetting lessons. As Keynes proved, sticking to stability policies in a recession only widens the gap as slackening demand and production drag each other down in an endless spiraling circle. Moreover, he cast serious doubts on the strategy of combining loose monetary policy with balanced budgets for putting the economy back on track. His liquidity trap theory mirrors Draghi’s current warnings on the ECB’s limits in coping with a huge GDP gap.