Eurozone

As most European countries are implementing partial or full lockdowns to prevent the spread of the coronavirus, the eurozone economy faces a collapse in economic activity in the short term.     

Eurozone

Following the 0.2% expansion in Q3, our expectation was that the eurozone economy would start recovering in Q4. However, the latest German data, which shows the economy flirting with recession in H2, has dashed hopes that eurozone GDP growth accelerated substantially in the final quarter of last year.     

Eurozone

Based on the available monthly data, the eurozone economy continued to expand at a steady, albeit weak, pace at the end of 2019. The composite PMI rose to a four-month high in December, boosted by stronger activity in services. That said, its Q4 average was still below the Q3 level, suggesting that GDP growth will have remained moderate in the final quarter of last year.     

Eurozone

Following a sharp slowdown in H2 2018, latest survey data suggests that economic activity seems to be stabilising. There remains a wide divergence between robust activity in services and a struggling manufacturing sector, which is still reeling from the impact from several transitory shocks as well as a sharp deterioration in the external environment. This is particularly evident in the March PMI numbers, which showed services activity bouncing back to its highest level in four months whereas the manufacturing sector continued to slip, reaching its lowest level in six years. We still think that robust domestic fundamentals should help to support growth in 2019. But risks remain, especially from an increasingly adverse global environment.     

Eurozone

Following a 0.2% q/q rise in GDP in Q2, it looks as though the eurozone economy remained very weak in Q3. High‐frequency indicators remained dismal, with the composite PMI falling to its lowest in six years in September. The EU's Economic Sentiment Indicator also fell in September and was below the Q2 average. And available hard data offers no relief, with both industrial production and retail sales contracting in July.     

Eurozone

GDP growth in Q3 was revised up from 0.6% to 0.7%. This followed a consistent trend over the past year, which has seen the initial GDP flash estimate being revised up by 0.1–0.2% a quarter.     

Eurozone

Following the sharp fall in GDP in Q1, monthly figures show that economic activity collapsed further in April, coinciding with the peak of lockdown measures in most European countries. But more recent data indicates that activity was starting to recover before the end of Q2. After collapsing in March and April, the PMIs rose strongly for a second consecutive month in June, suggesting that economic conditions may be returning towards normal. Meanwhile, sentiment indicators continue to improve, driven by a rise in forward-looking expectations as investors anticipate a deep but shortlived recession.     

Eurozone

The Eurozone economy probably reached its peak velocity in Q2, when GDP rose 0.6% q/q. The figures available for Q3 provide something of a diverging picture between soft and hard data. The composite PMI – which has been the best predictor for quarterly GDP growth – averaged 56.0 in Q3, only slightly below the 56.6 seen in Q2. And the EC's Economic Sentiment Indicator was actually stronger in Q3 after reaching a new multi‐year high in September. But some of the hard data suggest that growth may be softer than indicated by the strong surveys. In particular, retail sales have been surprisingly weak despite high consumer confidence and strong employment growth, although we suspect weatherrelated factors have been at play.     

Eurozone

The Eurozone economy has shown signs of having gone through a soft patch in Q1. The PMIs fell again in March, though they remain at levels above those seen in 2017 and consistent with strong GDP growth. The decline in manufacturing sentiment has been noticeably sharper, but coming off an even higher base. Meanwhile, the services sector continues to show a strong domestic economy, with employment growth displaying no signs of slowing yet.     

Eurozone

GDP growth slowed down to 0.4% in Q1 (from 0.7% in Q4), driven by a plunge in exports, which contracted for the first time in six years. While not a surprise, the collapse in exports highlights the risks posed by rising protectionism.     

Eurozone

The recent flow of economic data supports the view that Q1 will have seen stronger quarterly GDP growth than Q4's 0.4% gain. Indeed, given the composite PMI's healthy end to Q1, the strength seen in Q1 may continue next quarter. As a result, we have upgraded our forecast for GDP growth in Q2 and now pencil in a second consecutive quarterly gain of 0.5%.     

Eurozone

We expect the eurozone economy experienced a quarterly rise of around 10% in Q3 as activity benefited from favourable base effects after the collapse in Q2. However, the latest monthly data are confirming our fears that the recovery is tapering off quickly, as the number of Covid-19 infections continues to rise across the continent. PMIs declined for a second consecutive month in September amid a sharp fall in services, which highlights the impact that a second wave would have on the economy.     

Eurozone

The eurozone economy continues to be characterised by a wide divergence between robust activity in services and a struggling manufacturing sector, the latter still reeling from the impact of several transitory shocks as well as a deterioration in the external environment. While the services PMI still showed robust growth in Q2, rising slightly from Q1, its manufacturing counterpart portrayed a sector still firmly in contraction territory, albeit with some signs that activity is stabilising.     

Revisiting the Eurozone Phillips curve

• In a recent speech, ECB chief economist Peter Praet emphasised the importance of the Phillips curve ‐ the inverse relationship between unemployment and inflation ‐ when addressing concerns that disinflation (or even deflation) could become a longer‐term problem in the Eurozone. Praet argued that a scenario of a sustained period of disinflation is only realistic if the link between economic slack and inflation is broken. In this article, we revisit the Phillips curve in the Eurozone with the aim of gauging whether there has been a change in the relationship following the global financial crisis and how uniform the curve is among major Eurozone economies.
• We conclude that the Phillips curve is still valid in the Eurozone, although our analysis indicates a weakening of the link in the post‐crisis period. On the whole, our analysis shows that the Phillips curve relationship has been robust in the Eurozone since the creation of the currency union. However, in replicating the analysis for just the pre‐crisis period, we have noticed that the relationship between slack and inflation for the Eurozone was stronger (i.e. the slope of the curve was steeper) before the crisis rather than over the whole sample, since the introduction of the Euro.
• We find that there is considerable heterogeneity in the strength of the link between inflation and slack across the Eurozone economies, which adds to our existing body of work on their different responses to same shocks. Moreover, in contrast to the Eurozone overall, we find that in Spain and Italy the responsiveness of inflation to slack appears to have actually increased since the crisis; this might reflect the effectiveness of the structural reforms undertaken in both countries in order to reduce the rigidity of their economies.
• From 2014 onwards, very low inflation in the Eurozone has led to fears of sustained disinflation and even a deflationary spiral. Our view has always been that these fears were overblown; proving that the key structural relationship needed for ECB to meet its mandate is still in place corroborates our stance. Our forecast is for headline inflation to rise to 0.7% in 2016 (under the assumption that oil prices average US$37pb) and then to 1.7% in 2017 ‐ in line with ECB's target of “close to, but below, 2%”. The Phillips curve we have derived for the Eurozone tells a similar story. However, renewed weakness in oil prices at the start of 2016 presents a downside risk to our forecasts.
• Our bottom‐up CPI inflation model indicates that inflation might average just 0.2% this year if oil remains at around US$30pb. Furthermore, the prospect of external demand weakness derailing the Eurozone recovery poses another risk. This has raised the possibility of further expansion of the ECB's QE programme. However, as we continue to see resilient domestic demand in 2016, our baseline case still remains that the ECB will make no additional substantial adjustments to its QE programme in the near term.

     

Mutual excitation in Eurozone sovereign CDS

We study self- and cross-excitation of shocks in the Eurozone sovereign CDS market. We adopt a multivariate setting with credit default intensities driven by mutually exciting jump processes, to capture the salient features observed in the data, in particular, the clustering of high default probabilities both in time (over days) and in space (across countries). The feedback between jump events and the intensity of these jumps is the key element of the model. We derive closed-form formulae for CDS prices, and estimate the model by matching theoretical prices to their empirical counterparts. We find evidence of self-excitation and asymmetric cross-excitation. Using impulse-response analysis, we assess the impact of shocks and a potential policy intervention not just on a single country under scrutiny but also, through the effect on cross-excitation risk which generates systemic sovereign risk, on other interconnected countries.     

欧债危机:一个幽灵在徘徊

布鲁塞尔时间2011年10月27日凌晨,欧元区首脑终于就希腊债务减记、扩大欧洲金融稳定基金(EFSF)、银行注资以及加强金融监管等一揽子方案达成一致。国际社会对此给予了积极评价。     

Eurozone equities expected to outperform in 2015

• We expect Eurozone equities to somewhat outperform US equities in 2015, so long as downside risks (such as a Greek exit from the Eurozone) do not materialise.
• Absolute valuation measures suggest that Eurozone stocks are fair‐to‐slightly cheap, limiting their upward potential. But relative to US stocks, they appear more attractive. This suggests potential for favourable portfolio reallocations and a possible lift to equity prices in the region.
• That said, earnings growth is likely to provide the main support to Eurozone equity performance in 2015, against a backdrop of converging earnings cycles between the US and the Eurozone.

     

Restoring Credible Economic Governance to the Eurozone

This paper discusses new institutional rules for a stable and lasting European Monetary Union (EMU). We propose a return to a strict and sustainable economic governance framework, which is mainly driven by market forces within a smart rule‐based environment. Our recommendations are: (a) ex ante conditionalities with a tough monitoring process to avoid moral hazard in the future; (b) further enhancement of the Stability and Growth Pact; and (c) ultimo ratio punishment to be able to respond to the unique constellation of fiscal–monetary interaction and new rescue facilities. Countries violating fiscal rules for more than four years in a row will thus lose their fiscal sovereignty or will have to resign from the Eurozone. After fulfilling the ex ante conditionalities as well as all required criteria, the country either will recover its fiscal sovereignty, or, in case of exclusion, will be given the option to rejoin EMU under certain conditions.