Matilde Mas (Funcas) | Since the beginning of the 21st century, productivity growth has experienced an almost generalized slowdown, albeit of unequal intensity, in most developed countries. And this is despite the accelerated process of innovation accompanying the Fourth Industrial Revolution. It is the phenomenon known as the productivity puzzle. Among the large EU-15 countries – Germany, France, Italy, Spain and the UK – the general pattern has been a slowdown in labour productivity since around 2005.
Yesterday, Eurostat published the Consumer Price Index (CPI) for June, which rose 0.3% year-on-year. This is a rebound in inflation in the region from the 0.1% rate recorded in May. The figures were in line with analysts’ expectations. However, even with the effect of the German VAT cut, European inflation should become negative again in July.
The association FuelsEurope, representing the European refining industry, expects to produce 30 million tonnes of low-carbon liquid fuels (eco-fuels) annually by 2035. This would mean a reduction in CO2 emissions with an estimated minimum of 100 million tonnes per year by that date, and emission neutrality by 2050 in Europe. The European counterpart the Spanish Association of Oil Product Operators (AOP) has launched a plan to introduce these eco-friendly fuels into the transport sector.
Apolline Menut (AXA Investment) | The Next Generation EU package is a genuine step forward. Joint debt issuance, fiscal transfers and proposed joint tax revenues are politically meaningful. But the package is too small (around 5% of EU GDP) and slow (peaking in 2023-2024) to be a proper cyclicalstabilisation tool.
European markets have opened higher this morning following some upbeat PMI data. Readings above 50 indicate growth and while the readings for Germany stopped just short, France’s numbers cleared that important level. France’s CAC 40 is up 1.6%, the UK benchmark FTSE 100 is up 0.8% but leading the way is the German Dax up over 2%.
CaixaBank Research | The impact of the coronavirus on inflation is uncertain, as there are simultaneous supply and demand movements that can tilt the balance towards more inflation, disinflation, or even deflation. In the short term, despite measurement problems and the closure of markets, disinflation has dominated. In the medium term, several factors suggest that disinflationary pressures will continue to dominate. In the long term, transformations such as deglobalisation or shifts in consumption patterns could lead to structural changes.
Ofelia Marín-Lozano (1962 Capital SICAV) | The starting point is much more solid than in 2008, when the banks emerged from many years of double-digit credit expansion and high rates. In addition, European banks have significantly improved their equity base, which is double, or even almost triple, the levels reached a decade ago in all their solvency ratios. The ratio of higher quality capital to risk-weighted assets, (CET1 or common equity tier 1) has risen from levels below 6% in 2011 to over 14% today.
Spanish banks have requested more than €97.9 Bn in the auction. Caixabank has already announced that it has requested 40.7 billion euros, the total to which it is entitled. Other lenders have also made their moves: €27 Bn requested by Sabadell, €21 Bn by BBVA and €9.2 Bn by Bankia. In Italy, Intesa and Unicredit have already reached € 70,000 and €93,000, the latter reaching its limit. Some systems in southern Europe (such as Italy) could have reached 85% to 90% of their total TLTRO limits.
Lidia Conde (Frankfurt) | German corporations are highlighting the risks of the global distribution of work, their weakness in the face of global value chains. Will work and production return to Europe, to Germany? It’s not clear. The pandemic has led to unprecedented reactions and almost unconditional support for Europe. It’s a way of helping yourself. Germany is expecting the worst recession since World War II, with the economy declining by up to 8% in 2020.
Peder Beck-Friis, (Portfolio Manager, Global Macro PIMCO) | BoE will announce its next policy decision on Thursday (noon, UK time). We expect them to leave the policy rate unchanged at 0.1% and to add +100bn of QE purchases. This is in line with market pricing.