Euro zone

Euro area reports robust economic growth in Q3 – inflation rate up slightly

So far, the feared economic slowdown in the euro area in the wake of the Brexit decision has failed to materialise. Economic growth was unchanged in the third quarter at +0.3 per cent quarter on quarter. Apparently the impact of the uncertainty about how Brexit will proceed is limited to some turbulence in the financial markets. As usual for the publication of its first estimate of economic output, the European statistical office Eurostat has not yet delivered any details of how growth momentum is broken down into its individual components. But the initial results from individual member countries and the available indicators suggest that personal consumer spending was once again an important growth mainstay. This is indicated by stable consumer confidence and solid retail sales figures. Those member states which have already provided first estimates of gross domestic product growth at this early point in time also delivered largely solid results….

British economy still defies Brexit – for now…

The British economy proved this morning that it is always good for a surprise: contrary to initial concerns, the unexpected Brexit vote in June has hardly done the economy any harm to date – growth has not only not buckled but economic momentum eased only negligibly during the summer months. With GDP growing by 0.5 percent in the third quarter over what was already a strong second quarter, the pace of economic growth has been extremely robust in the last few months. Annual growth even accelerated recently from 2.1 to 2.3 percent. Does this mean the concerns about Brexit are over and done with? It is hardly any wonder that the warnings about the economic outcome of the referendum are meanwhile seen by many as scaremongering. Nonetheless, we believe it would be reckless to think that such a drastic political watershed as the EU exit will not lead to any…

EMU reports persistently high capital export

Once again, the latest capital account data from the eurozone give little cause for encouragement. In August, capital withdrawals amounted to a sizeable EUR 34bn – albeit an improvement on the two preceding months but still at a worrying level. All in all, the development of the capital account in the eurozone has assumed ominous dimensions in recent years: While the region was still profiting from net capital inflows even in the crisis years 2010-2012, since the end of 2014 the situation has dramatically changed. In the third quarter 2014, net capital withdrawals of EUR -100bn were not only deep in the red but at the same time marked a new record low. And the data still show no sign of recovery. Quite the reverse in fact, with the capital flight from the eurozone having accelerated further since then. This trend is being driven not only by foreign investors but…

Central banks – when the exception becomes the monetary policy rule

Almost a decade after the start of the financial market crisis, the big industrialised nations still find themselves in an exceptional situation when it comes to monetary policy. In view of weak economic growth, ongoing disinflation and shocks exogenous to the market, such as the Brexit vote, three of the four major central banks are relying on “extraordinary” monetary policy measures – the ECB, BoJ and BoE. Criticism has been voiced that the central banks’ decision to take extremely expansionary measures is not purely the result of external circumstances. The central banks’ asymmetrical response functions (to economic cycles) are also said to have favoured these developments. The duration and scope of QE measures mean that they hardly deserve the attribute of “extraordinary” any longer. Instead, it looks like they might become the new monetary policy rule. The US central bank already stopped taking unconventional measures two years ago. Nonetheless, the…

Italy: Assessing the effects of the labour market reform „Jobs Act“ – what has been achieved so far

Italy’s lengthy economic crisis has caused unemployment to rise noticeably in past years. Rigid labour market regulation has additionally decelerated the development of employment. Both factors prompted the Italian government to act and overhaul the labour market. Due to the rigid regulation of the Italian labour market, employees had become divided into two groups – those with permanent jobs that were virtually impossible to terminate and those with limited working contracts. The reform was adopted at the end of 2014 and implemented in stages in the first half of 2015. Essentially the labour market reform, dubbed the „Jobs Act“, focused on loosening up the previously very strong protection against dismissal rules. A new working contract model was created that was intended to act as a bridge between temporary and permanent employment. In addition to creating more flexibility, the workforce was also to be offered greater social security. The reform has…

Spain: Reform policies pay off – they must only be continued

After eight months and two rounds of general elections, Spain’s parliamentarians have still not succeeded in establishing a new government. Rajoy, the prime minister to date, is therefore only a caretaker prime minister. What is problematic is that the cabinet is not permitted to submit new bills to parliament and therefore simply administers the status quo. Despite the economic successes, the popularity of Rajoy and his conservative party has fallen. Corruption scandals have weakened confidence in the established parties and courageous structural reforms have led to painful cuts for the population. The reforms to date no doubt played a key role in Spain managing to come out of recession and now being in a strong economic upturn. Core elements of the economic reform programme were reforms to labour law to enable greater flexibility. Protection against termination was eased and collective bargaining agreements made more flexible. There have also been extensive…

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