22/2/15: Ifo on Eurogroup Conclusions

Ifo's Hans-Werner Sinn on Eurogroup deal for Greece:

I failed to spot where the Eurogroup allows for any 'additional cash' for Greece. 

The core point that Greece "has to become cheaper to regain competitiveness. This can only happen if Greece exits the Eurozone and devalues the drachma." On this, Sinn is probably correct. Unless, of course, there is a large scale writedown of Greek debts accompanied by a massive round of reforms. Both of these conditions will be required and not one of them is on the cards.

18/2/15: Inflation Expectations and Consumers' Readiness to Spend

In an earlier post I provided a rough snapshot of the evolving relationship between inflation and consumer demand. But here is a fresh academic paper covering the same subject:

Bachmann, Rüdiger, Tim O. Berg, and Eric R. Sims. 2015. "Inflation Expectations and Readiness to Spend: Cross-Sectional Evidence." American Economic Journal: Economic Policy, 7(1): 1-35. https://www.aeaweb.org/articles.php?doi=10.1257/pol.20130292 (h/t to @CHCEmsden for this link)

From the abstract: the authors examined "the relationship between expected inflation and spending attitudes using the microdata from the Michigan Survey of Consumers. The impact of higher inflation expectations on the reported readiness to spend on durables is generally small, outside the zero lower bound, often statistically insignificant, and inside of it typically significantly negative. In our baseline specification, a one percentage point increase in expected inflation during the recent zero lower bound period reduces households' probability of having a positive attitude towards spending by about 0.5 percentage points."

In other words, when interest rates are not close to zero, consumers expecting higher inflation do lead to a weak, statistically frequently zero, uplift in readiness to increase durable consumption (type of consumption that is more sensitive to price variation, and thus should see a significant positive increase in consumption when consumers anticipate higher inflation).

But when interest rates are at their zero 'bound', consumers expecting higher inflation in the future tend to actually cut their readiness to spend on durables. Not increase it! And this negative effect of future inflation on spending plans is "significantly negative".

Now, give it a thought: the ECB is saying they need to lift inflation to close to 2% from current near zero (stripping out energy and food). Based on the US data estimates, this should depress "households' probability of having a positive attitude towards spending" by some 1 percentage point or so. In simple terms, there appears to be absolutely no logic to the ECB concerns with deflation from consumer demand perspective.


Update: a delightful take on deflation from Colm O'Regan: http://www.bbc.com/news/blogs-magazine-monitor-31489786. And a brilliant vignette on prices, markets, consumers and ... thought for deflation too: http://www.eastonline.eu/en/opinions/hobgoblin/economics-elsewhere-three-tales-that-may-rock-the-boat by @CHCEmsden h/t above.

18/2/15: Deflation and Consumer Demand: Euro Area Evidence

The key premise behind the risk of deflation is the argument that faced with a prospect of declining prices, consumers will withhold current consumption in favour of the future consumption and producers will delay current investment in favour of lower cost future investment.

The problem, of course, with this theory is two-fold:

1. It ignores the entirety of the evidence from the modern sectors (e.g. ICT services, ICT manufacturing and pharma) where deflation (falling prices of comparable services and goods, adjusted for quality and efficacy) has been ongoing for decades and the demand and investment grew, not fallen.
2. It ignores the totality of fundamentals that drive both demand and prices, and in particular the role of the after-tax disposable incomes available to support consumption and investment.

But never mind, the Euro area, griped by the fears of deflation is itself proving the meme of the deflation = bad, inflation = good as consumers continue to buy, because of falling prices, not despite of them.

Here's a telling slide from BBVA assessment of the European situation:

Thus, we have a question: why, then, do European policymaker fear deflation? The answer is a simple one: deflation hurts tax intake. So the real concern here is not for the wellbeing of the economy or consumers or society at large, but for the fiscal position of already over-stretched (and in some cases insolvent) sovereigns. 

6/2/15: Cyprus AWOL on Troika 'Reforms'

Yes, at some point, Troika won't be able to handle all the bad news flying its way... for now, however, a new alarm at the barbwire fence of European Reformism: Cyprus is heading off the Troika Reservation:

Whatever might have made Cyprus rush for the AWOL, I'll let you discover, but judging by the foreclosure and insolvency framework reforms approved by the Troika in Ireland, one can't be too much surprised if any country would have much of faith in Troika expectations on that front. Then again, Cypriots would probably remember how EU regulators first encouraged accumulation of Greek sovereign debt in Cypriot banks, then haircut that debt, causing instant insolvency crisis across the Cypriot banks. Why would anyone listen to the same people giving advice on 'structural' reforms next, puzzles me.

24/1/2015: ECB v Fed: Why Frankfurt's QE is a Damp Squib

A neat chart from Pictet showing balancesheet comparatives for ECB and the Fed.

Setting timing issues aside (which are non-trivial), the quantum of ECB balancesheet expansion planned is still too weak and it is too weak relative to previous peak. The Fed balancesheet expansion followed three stages:

• Stage 1 in 2008-2009 was sharp and more significant than for ECB.
• Stage 2 covered Q1 2009-Q2 2011
• Stage 3 covered Q1 2013 through Q3 2014.
• There were no major policy reversals, only moderation, over the entire QE period.

In contrast, ECB balancesheet expansions were weaker throughout the period, and were subject to a major reversal in Q1 2013 - Q3 2014 period.

In effect, even with this week's boisterous announcement, the ECB remains a major laggard in therms of monetary policy activism, compared to all other major Central Banks that faced comparable risks.

Now, to timing. ECB is a de facto your family doctor who routinely forgets to apply medicine in time and under-medicates the patient after the fact. Frankfurt slept through the Q1 2009-H1 2011 and went into a delirious denial stage in Q1 2013-H1 2014. The inaction during two key periods meant that nascent recovery of 2010 was killed off and 2013-2014 can be written off as lost years. The lags in policy reaction by the ECB are monumental: as the Fed ramped up monetary expansion in Q4 2012, the ECB will be presiding over a de facto monetary (balancesheet) stagnation, if not contraction, until March 2015. Which means that during the critical years of deleveraging - of banks and the real economy - debt reductions in the European economy were neither supported by the institutions (bankruptcy and insolvency resolution regimes), nor facilitated by the monetary policy. Instead, monetary policy simple delayed deleveraging by lowering the interest rates, without providing funding necessary for the writedowns. This is diametrically different to the US, where deleveraging was supported by both monetary policy and institutional set ups.

Meanwhile, Germans are now at loggerheads with the rest of Europe, whinging about the 'abandoned prudence' of the ECB. Best summary of why they are dead wrong is here: http://www.forexlive.com/blog/2015/01/23/eight-reasons-german-complaints-about-qe-and-the-eurozone-are-laughable/

The circus of the euro area pretence at economic (and other) policymaking rolls on. Next stop, as always, Greece...

23/1/2015: A Liquidity Fix for the Euro? What for?...

So Euro area needs liquidity... sovereign liquidity, right?

Take a look at the latest Eurostat data:

Even after all statistical 'methodology' re-jigging and re-juggling, Q1-Q3 2014 saw Government spending accounting for 49.5% of GDP and deficit averaged 2.43% of GDP. Meanwhile, debt/GDP ratio stood at 92.1% of GDP excluding inter-governmental loans (2.4% of GDP):

Yields on Government bonds are hitting all-time lows, including for 'rude health' exemplars such as Spain and Italy:

(credit @Schuldensuehner )

Clearly, liquidity is not  a problem for European sovereigns. But pumping in more liquidity into the euro system might just become a problem: the lower the yields go, the higher the debt climbs. With this, the lower will be the incentives for structural reforms, and the higher will be the debt overhang. All the while, without doing a ditch to repair the actual crisis causes: excessive legacy debts in the households' and corporates' systems.

Meanwhile, the press is lavishing praise on the ECB's Mario Draghi for... well I am not quite sure what is being praised: Mr Draghi is planning on doing in March 2015 what the Fed, BofE, and BoJ have been doing since (on average) 2009, albeit he is facing German (and others') opposition.

Being 6 years too-late into the game, Mr Draghi, therefore, is equivalent to a lazy and tardy student who finally showed up for the class after all other students have left, but bearing an elaborate excuse for not doing his homework.

5/1/2015: IMF on Debt Relief for Greece: Repeating the Repeats

Much of talk nowadays from the European leaders on Greek debt situation and the link to political crisis in the country. Some conversations are about lack of potential contagion from Grexit, other conversations are about the right of the Greeks to decide on their next Government, whilst all conversations contain references to the new Government having to abide by the previous commitments. Which is fine. Except, what about the European partners commitments? Specifically one commitment - relating to further debt relief for the country?

Here is 2013 IMF assessment of the Greek situation (emphasis in italics is mine):

"47. The program continues to satisfy the substantive criteria for exceptional access but with little to no margin. Delays in the implementation of structural reforms raise concerns about the capacity of the authorities to implement the program in a difficult political environment. …The continued commitment of euro area member states to support Greece, including by providing additional official financing to fill future financing gaps and through further debt relief as necessary, is an essential part of meeting the criteria."

And then:

"48. …The program is fully financed through July 2014, but a projected financing gap will open up in August 2014. Thus, under staff’s current projections, additional financing will need to be identified by the time of the fifth review, to keep the program fully financed on a 12-month forward basis. The Eurogroup has initiated discussions on how to eliminate the projected financing gaps. In this regard, the Eurogroup’s commitment in February and November 2012 to provide adequate support to Greece during the life of the program and beyond, provided that Greece fully complies with the program, is particularly important."

For some more on debt relief:

"55. As noted in the third review staff report, debt sustainability concerns continue to remain a risk. …The commitment of Greece’s European partners to provide debt relief as needed to keep debt on the programmed path remains, therefore, a critical part of the program. But the programmed path entails still very high debt well into the next decade, leaving Greece accident prone for an extended period. Should debt sustainability concerns prove to be weighing on investor sentiments even with the framework for debt relief now in place, European partners should consider providing relief that would entail a faster reduction in debt than currently programmed."

And

"56. …The program remains subject to numerous risks, mainly from the worsening of the macro outlook combined with a further deterioration in banking sector assets (feeding back to the real economy), difficulties with the implementation of ambitious fiscal policy and administrative changes, and—above all—failure once again to ensure a reinvigoration of structural reforms in the face of strong resistance from vested interests. Absent a critical mass of structural reforms that would transform the investment climate, the growth outlook—and, therefore, crucially the assumptions regarding financing needs for the rest of the program period and the debt path—would not materialize. Externally, closing financing gaps and delivering on the commitment to reduce debt will be a test of European support."

And in Box 4, Criterion 2:
" …In light of the commitments from euro area member states to provide additional debt relief as necessary, the baseline debt trajectory is sustainable in the medium-term but subject to significant risks."

Link to the above: http://www.imf.org/external/pubs/ft/scr/2013/cr13241.pdf


But there are more statements from the IMF on the issue of debt relief for Greece.

Take for example Transcript of a Press Briefing by William Murray, Deputy Spokesman, International Monetary Fund, from September 11, 2014 (http://www.imf.org/external/np/tr/2014/tr091114.htm):

"QUESTIONER: You told us many times from this podium that the issue of the Greek debt will be discussed at the sixth review. As I understand this, it's going to begin at the end of the month. The Euro Group said on Monday that the debate will begin after the sixth review. What we want to hear is that are the discussions about the financing of the Greek program and about the debt, still proceeding on an orderly way as you told us before many times? And what is your plan or your strategy for the Greek debt? Is there an option of those talks between you and the Europeans? Are the Europeans onboard to discuss this big problem for Greece?

MR. MURRAY: ...I do want to remind you and others what we have said all along. There is an agreed framework in place for ensuring debt sustainability with Greece's European partners agreeing to provide any additional debt relief as needed to help bring Greece's debt down to 124 percent of GDP by 2020. And to substantially below 110 percent of GDP by 2022 as long as Greece continues to deliver on its program commitments."

Now, IMF estimates debt/GDP ratio for Greece to be at 170% of GDP. Which means that over the next 5 years, the programme will have to deliver debt.GDP ratio reduction of a massive 50 percentage points. How on earth can this be achieved without debt relief is anyone's guess.

And more: Interview by Greece’s newspaper Ethnos with IMF Mission Chief for Greece, Poul Thomsen, published in Ethnos, June 15, 2014 (http://www.imf.org/external/np/vc/2014/061514.htm):

"QUESTION: You talk constantly about the commitment of Europeans regarding the financing needs of Greece and Greek debt relief. If Europeans do not show the determination needed or the courage to take bold decisions, like last time, what is the IMF planning to do?

ANSWER: We are confident that the European partners will deliver on their commitments. Do you believe that Greece's debt is now sustainable or do you believe that the situation needs new and drastic interventions? Are European commitments to contribute to debt relief enough for the IMF? What could the potential tools for debt relief be? The agreed framework is credible, provided that Greece and its European partners deliver on their promises. For Greece, this means continuing to advance reforms and achieving and maintaining a fiscal primary surplus of 4.5 percent of GDP. For the European partners, this means providing additional debt relief, if required, to keep debt on the programmed path. Thus, if adhered to, the framework will make the debt sustainable."

So 4.5% primary surplus over 5 years - even if achieved, will deliver somewhere in the neighbourhood of 1/2 of the required debt adjustment. The rest, presumably, will have to be achieved via economic growth, which will have to be running, on average, at 4% per annum to provide for the adjustment planned. And, thus, do tell me if the above any realistic, let alone probabilistically plausible.

In its 5th (most recent) assessment of the Greek situation, IMF reiterated (paragraph 49) that "The continued commitment of euro area member states to support Greece, including by providing additional official financing to fill future financing and through further debt relief as necessary, is an essential part of meeting the criteria" for debt sustainability. (see http://www.imf.org/external/pubs/ft/scr/2014/cr14151.pdf)

And it also carries Greek authorities expectation of the European funders agreement to further debt relief: "The program is fully financed through the next twelve months. Firm commitments are also in place thereafter from our euro area partners to provide adequate support during the program period and beyond, provided that we comply fully with the requirements and objectives of the program. In this regard, we remain on track to receive the first phase of conditional debt relief from our European partners, as described in the Eurogroup statements of November 27 and December 13, 2012." (page 71)

The same was stated in May 2014 Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding from the Greek authorities (see: http://www.imf.org/external/np/loi/2014/grc/051414.pdf). On foot of the IMF press conference statement on same (see: http://www.imf.org/external/np/tr/2014/tr050814.htm).

And so on, to no end and… no closure from the European partners…

4/1/2015: Greek Crisis 4.0: Politics 1 : Reality 0

With hundreds of billions stuffed into various alphabet soup funds and programmes, the EU now thinks that Greece has been isolated, walled-in, that contagion from the volatile South to the sleepy North is no more (http://www.reuters.com/article/2015/01/03/us-eurozone-greece-germany-idUSKBN0KC0HZ20150103). Backing these beliefs, the EU and core European states have gone on the offensive defensive when it comes to Greek latest iteration of the political mess.

Yet, for all the 'measures' developed - from European Banking Union, to 'Genuine' Monetary Union, to EFSF, EFSM, ESM and ECB's OMT, LTROs, TLTROs, ABS, etc etc - the EU still lacks any clarity on what can be done to either facilitate or force exit of a member state from the EMU.

The state of the art analysis of the dilemma still remains December 2009 ECB Working Paper on the subject, available here: http://www.ecb.europa.eu/pub/pdf/scplps/ecblwp10.pdf which is, frankly put, a fine mess. Key conclusion, however, is that "a Member State’s exit from EMU, without a parallel withdrawal from the EU, would be legally inconceivable; and that, while perhaps feasible through indirect means, a Member State’s expulsion from the EU or EMU, would be legally next to impossible."

So much for all the reforms, then - lack of clarity on member states' ability to exit the euro, whilst lots of clarity on measures compelling and incentivising a member state to submit to the euro area demand (e.g. bail-ins, access to Central Bank funding etc) - all the evidence indicates that the entire objective of 2009-2014 reforms of the common currency space has been singular: an attempt to simply lock-in member states' into the euro system even further. Disregarding any monetary or fiscal or financial or economic or social realities on the ground.

Which brings us back to the starting point: at 175% debt/GDP ratio, Greece cannot remain within the euro area (for domestic and international financial, economic and social reasons). Yet, it cannot exit the euro area (for domestic and international political reasons). Politics 1 : Reality 0, again.

26/12/2014: Advanced Economies: Public Debt Explosion 2008-2014

Some interesting insight into the legacy of the Great Recession that we are carrying over into 2015. From the start of 2008 through 2014:

• Average increase in gross debt of all advanced economies was 27.2 percentage points of GDP, with a range from a decrease of 21 percentage points for Norway and an increase of 88.5 percentage points for Ireland. Thus, the average annualised rate of increase in government debt over the period was around 3.47 percentage points of GDP with a range of -2.76 percentage points annualised decline for Norway and a 9.48 percentage points annualised increase in Ireland.
• Average change in the gross government debt of the group of countries where debt declined over the crisis was -12.0 percentage points of GDP. There were only 3 countries in this group.
• Average increase in gross government debt of the group of countries with benign levels of increase (levels of increase consistent roughly with offsetting GDP contraction over the crisis period) was 4.8 percentage points of GDP. There were only 5 countries in this group and only two of these were in Europe, with none (at the time of the crisis onset) being members of the euro area.
• Average increase in gross government debt within the group of countries where debt rises were moderately in excess of contraction in the economy was 16.4 percentage points of GDP.
• Average increase in gross government debt within the group of countries with debt increases significantly in excess of economic contraction was 26.6 percent of GDP.
• Average increase in the government debt within the group of countries with severe debt overhang was 60.4 percentage points of GDP, with a range of increases in this group between 41.6% for the U.S. at the lower end and 88.5% of GDP for Ireland at a higher end.

Chart above summarises these facts and also highlights the extent to which Ireland's government debt increases were out of line with experience in all other countries, including Greece and all other 'peripheral' economies.

The average rise in gross government debt across all peripheral economies 2008-2014 was 56.5 percentage points of GDP (excluding Ireland), which is more than 1/3 lower than that for Ireland. Our closest competitor to the dubious title of worst performing sovereign in terms of debt accumulation is Greece, which experienced a debt/GDP ratio increase almost 1/4 lower than Ireland.

And in case you wonder, our Government's net debt position is not much better:

23/12/2014: Eurocoin Growth Indicator: Q4 misery continues in December

Euro area lead growth indicator Eurocoin posted a rather predictable rise in December - from a miserable 0.06 in November (roughly translating into 0% growth) to a rather miserable 0.11 (roughly still translating into 0% growth).

The rise was driven by stock markets improvements and lower rate of contraction in Industrial Production, plus a gain in the European Commission-measured Business Sentiment (that roughly contrasted the deteriorating growth signalled by the PMIs). Consumer surveys continue to disappoint, but exports posted a pick up.

So where we are in growth forecast terms?

As the above shows, growth forecast is running at 0.1% real GDP expansion for Q4 2014.

With Q4 2014 average eurocoin reading at 0.083 and 6mo average at 0.14, we are well below 0.24 3mo average for Q4 2013 and well below the rather poorly 0.33 historical average.

ECB is still caught in the zero-rates trap:

And longer term growth rates are, well, not impressive at all and slowing down:

All in, an ugly picture of euro area economic performance.

24/10/2014: One Ugly with some Ugly Spice... EURO STOXX EPS

It's Friday... ECB is coming up with the banks tests on Sunday... And before then, if you want 'ugly', here's 'ugly':

The above chart plots Earnings per Share, in euro, for S&P500 and for EURO STOXX. It comes via @johnauthers

Now, despite this, you wouldn't believe it, but roughly 68% of European companies reporting earnings this quarterly cycle to-date have been outperforming analysts expectations.

And for some real 'ugly' spice on top of this pizza, the sub-trend decline in the EPS for European stocks has set on roughly H2 2011... something we shall remember when we re-read all the European 'recovery' tripe from 2011 and 2012 and a good part of 2013.

28/6/2014: Is S&P Behind the Curve on Portugal and Spain?

Euromoney Country Risk report is profiling S&P ratings on Portugal and Spain, with a comment from myself: here.

If you can't access the article, here is the article (click on each image to enlarge):

21/6/2014: IMF 'Waived' Sustainability Requirement in Lending to Euro Area Countries

IMF paper, published yesterday now fully admits that the Fund has 'waived' its own core requirements for lending under the core programmes in euro area 'periphery'. More importantly, the criteria for lending that was violated by the Fund is… the requirement that "public debt be judged as sustainable with "high probability”" under new lending programme.

The paper is available here: http://www.imf.org/external/np/pp/eng/2014/052214a.pdf

Quoting from the IMF report: "In the sovereign debt crises of the 1980s, concerted financial support from the private sector was a standard feature of Fund-supported programs, most of which were within the normal access limits. By contrast, the spate of capital account crises that began in the mid 1990s occurred at a time when the creditor base had become much more diffuse, and the Fund’s strategy sought instead to entice a resumption of private flows through programs involving large-scale Fund and other official resources. While this strategy worked well in some circumstances, it failed to play its catalytic role in cases where, amongst other factors, the member's debt sustainability prospects were uncertain." 

Thus, the Fund clearly recognised that probabilistically, extended lending can only work where there is some confidence that the borrower debts post-lending by the IMF, are sustainable. In other words, the Fund agreed that there is the need for more extensive lending (in some cases), but that such lending should, by itself, not push beyond sustainability levels of debt. Were it to do so, the Fund would have required restructuring of the sovereign debt to reduce levels to within sustainability bounds.

This is how this 'bounded' lending beyond normal constraints was supposed to work: "In response to this varied experience, and to ensure effective use of its resources, the Fund concluded that decisions to grant access above normal limits should henceforth be guided by defined criteria. These were established in the 2002 Exceptional Access Policy, [EAP] which included a requirement that public debt be judged as sustainable with "high probability.” The framework applied initially only in capital account cases, but in 2009 became applicable to all exceptional access decisions."

Now, fast forward to the Fund entanglement in euro area debt/default politics: "When Greece requested exceptional access in May 2010, the policy would have required deep debt reduction to reach the high probability threshold for debt sustainability. Fearing that such an operation would be highly disruptive in the circumstances prevailing at the time, the Fund decided to create an exemption to the high probability requirement for cases where there was a high risk of international systemic spillovers—an exemption that has since been invoked repeatedly in programs for Greece, Portugal, and Ireland."

Elaborating on this, the paper states: "An important rigidity of the EAP came to the fore when Greece requested financial support in early 2010. When “significant uncertainties” surrounding the sustainability assessment prevented staff from affirming that debt was sustainable with high probability, the existing EAP framework would call for a debt reduction operation to deliver such high probability as a condition for the provision of exceptional access. In the case of Greece, where the high probability requirement was not met, however, there were fears that an upfront debt restructuring would have potentially systemic adverse consequences on the euro area. Given the inflexibility of the EAP, and the crisis at hand, the Fund decided to create an exemption to the requirement for achieving debt sustainability with a high probability when there was a “high risk of international systemic spillovers”. Since then, the systemic exemption has been invoked 34 times by end-May, 2014 in the three EA programs for Greece, Portugal, and Ireland."

Note that the systemic exemption has been invoked 34 times in just four years, in all cases in relation to euro 'periphery'. That is a lot of 'we can't confirm sustainability of debt levels post-programme, so we won't look there' invocations. More significantly, did anyone notice these invocations in IMF country reports that repeatedly assured us, since 2010 on, that things are sustainable in these countries?

Conclusion: the Fund now fully admits that its lending to Greece, Portugal and Ireland:

1) Required (under previous conditions) deep restructuring of sovereign debt; and

2) Was carried out in excess of the already stretched sustainability bounds.

The Fund loaded more debt onto these economies than could have been deemed sustainable even by its already stretched standards of 2002 EAP.

14/6/2014: BlackRock Institute Survey: N. America & W. Europe, June 2014

In the previous post (http://trueeconomics.blogspot.ie/2014/06/1462014-blackrock-institute-survey-emea.html) I covered EMEA results from the BlackRock Investment Institute latest Economic Cycle Survey. Here, a quick snapshot of results for North America and Western Europe

Per BI:

"This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 67% of 86 economists expecting the world economy will get stronger over the next year, compared to net 84% figure in last month’s report. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy.

Note: Note: Red dot denotes Austria, Canada, Germany, Norway and Switzerland.

At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen with exception of Switzerland which is expected to stay the same.

Eurozone is described to be in an expansionary phase of the cycle and expected to remain so over the next 2 quarters. Within the bloc, most respondents described Greece and Italy to be in a recessionary state, with the even split between contraction or recession for Portugal, Belgium and Ireland.

Over the next 6 months, the consensus shifts toward expansion for Greece and Italy.

Over the Atlantic, the consensus view is firmly that North America as a whole is in mid-cycle expansion and is to remain so over the next 6 months."


Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

7/5/2014: Eurostat backs out of Greek data mess

Here's Ifo Institute press release on Eurostat and data manipulation for Greece:

I have covered the issue here: http://trueeconomics.blogspot.ie/2014/04/2542014-stretch-of-numbers-here-bond.html

14/2/2014: BlackRock Institute Survey: N. America & W. Europe, February

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region was covered here http://trueeconomics.blogspot.ie/2014/02/822014-blackrock-institute-survey-emea.html

Now, on to survey results for North America and Western Europe region. Emphasis is, as always, mine.

"This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 65% of 110 economists expecting the world economy will get stronger over the next year, (18% lower than within January report).

The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."

First, 12 months ahead outlook: "At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen except Norway and Denmark, which are expected to remain the same."

Note that Ireland has moved closer to Eurozone average, away from 1st position in the chart it occupied in 2013.

Now, for 6 months outlook: "Eurozone is described to be in an expansionary phase of the cycle and expected to remain so over the next 2 quarters. Within the bloc, most respondents expect only Greece to remain in a recessionary phase at the 6 month horizon. Over the Atlantic, the consensus view is firmly that North America as a whole is in mid-cycle expansion and is to remain so over the next 6 months."

Note: Red dot denotes Austria, Norway and Switzerland.

Notable changes on previous: Greece position is much improved compared to 2013 when it occupied the North-Eastern most corner. Denmark is now in a weaker outlook position than Greece with higher expectations of a recessionary phase 6 months out. Ireland is bang-on on 10 percent assessing current state of economy as recessionary and same percentage of analysts expecting economy to be in a recession over the next 6 months. Coverage for Ireland is pretty solid in terms of number of analysts surveyed, so the above, in my opinion, shows that analysts consensus expects economy to strengthen over the next 6-12 months with strong support for a modest uplift.


Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

17/1/2014: BlackRock Institute Survey: N. America & W. Europe, January

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region was covered here: http://trueeconomics.blogspot.ie/2014/01/1712014-blackrock-institute-survey-emea.html.

Now, on to survey results for North America and Western Europe region. emphasis is always, mine.

"This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 83% of 109 economists expecting the world economy will get stronger over the next year, marginally higher than 81% reported in December. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."

"At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen except Portugal, which is expected to remain the same."

Of note:

• Ireland is now moved into the middle of 'growth distribution' from previous position firmly ahead of the entire region. Italy and Spain are now posting stronger expectations than Ireland.
• Eurozone expansion expectations are still lagging those of the UK and the US.
• Germany continues to lead the Eurozone expectations.

Out to 6 months horizon: "Eurozone is described to be in an expansionary phase of the cycle and expected to remain so over the next 2 quarters. Within the bloc, most respondents expect only Greece to remain in a recessionary phase at the 6 month horizon."

"Over the Atlantic, the consensus view is firmly that North America as a whole is in mid-cycle expansion and is to remain so over the next 6 months."

Red dot denotes Austria, Germany, Norway and Switzerland



Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

12/12/2013: BlackRock Institute Survey: N. America & W. Europe, December 2013

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region was covered here: http://trueeconomics.blogspot.ie/2013/12/12122013-blackrock-institute-survey.html.

Now, on to survey results for North America and Western Europe region:

"This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 71% of 115 economists expecting the world economy will get stronger over the next year, (6% higher than within the October report)."

Forward outlook:

• "The consensus of economists project a shift from early cycle to mid-cycle expansionary over the next 6 months."
• "At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen except Norway, where we currently have a low participation rate."

Euro area: "The consensus outlook for the Eurozone continued to improve, where the 6 month forward outlook shifted from 87% to 90% expecting the currency-bloc to move to an expansionary phase. Within the bloc, most respondents expect only Greece to remain in a recessionary phase at the 6 month horizon."

North America: "Over the Atlantic, the consensus view is firmly that North America as a whole is in mid-cycle expansion and is to remain so over the next 6 months."

Note Ireland's position: vis-à-vis euro area (weaker) in the first chart and overall (strong) in the second chart.

 Note: Red dot denotes Austria, Canada, Germany, Norway and Switzerland.

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

11/10/2013: BlackRock Institute survey: N. America & W. Europe: October 2013

BlackRock Investment Institute Economic Cycle survey for North America and Western Europe is out and here are core results (emphasis is mine):

"This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 65% of 113 economists expecting the global economy will get stronger over the next year. (6% lower than within the September report).

At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen or remain the same except Sweden. 

The consensus outlook for the Eurozone was also strong, with 87% of economists expecting the currency-bloc to move to an expansionary phase over next six months. The picture within the bloc was not uniform however, with most respondents expecting only Greece to remain in a recessionary phase and an even mix of economists expecting Portugal and Belgium to be in an expansionary or recessionary phase at the 6 month horizon (and similarly so for Sweden, outside of the currency-bloc). 

With regards to North America, the consensus view was firmly that the USA and Canada are in mid-cycle expansion and are expected to remain so through H2 2013."

Note that this correlates well with my own outlook: http://trueeconomics.blogspot.ie/2013/10/9102014-businessinsider-most-important.html

Also note: the above views do not reflect BlackRock own views or advice. 

Two charts as usual:

Note that in the chart above, Ireland now firmly converged with the Euro area. This is a very strong move compared to September survey: http://trueeconomics.blogspot.ie/2013/09/1292013-blackrock-institute-survey-n.html And the above is confirmed by the overall comparative expectations forward:

So on the net - good result for Ireland and positive outlook for Euro area as a whole.

12/9/2013: BlackRock Institute survey: N. America & W. Europe: September 2013

BlackRock Investment Institute released its latest Economic Cycle Survey for North America and Western Europe region for September 2013.

Per summary: "This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 71% of 119 economists expecting the global economy will get stronger over the next year. (1% higher than within the August report). 

At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen or remain the same. 

The consensus outlook for the Eurozone continued to improve, where the 6 month forward outlook shifted from 75% to 86% expecting the currency-bloc to move to an expansionary phase. The picture within the bloc was not uniform however, with most respondents expecting Portugal, Greece, Belgium and the Netherlands to remain in a recessionary phase over the next 2 quarters. 

With regards to the US, the consensus view firmly that North America as a whole is in mid-cycle expansion and remaining so through H2 2013."

September improvement for the global outlook was much shallower than a 10 point jump in August. Ditto for Eurozone outlook: this rose from 57% in July to 75% in August to 87% in September. Italy outlook seemed to have improved quite markedly, however.

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

Two charts as usual:

Ireland continues to lead expectations, just as it did in previous 3 months.

In global expectations there were some notable movements in analysts' replies. 6% of analysts expected global economy to get a lot stronger over the next 12 months back in August, and this declined to 2% in the current survey. 69% expected it to get a little stronger in August and this proportion rose to 76% in September. 5% expected the global economy to get a little weaker in the next 12 months back in August, which in September rose to 6%. 

In Ireland's case, in August zero percent of analysts expected the economy to get a lot stronger over the next 12 months and this remained unchanged in September survey. All analysts (100%) expected the Irish economy to get a little stronger over the next 12 months in September survey - same as in August. 57% of analysts expected the economy to be in an early-cycle recovery over the next 6 months back in August, and this fell to 50% for September survey. There was significant rise (from 0% to 17% between August and September surveys) in the proportion of analysts expecting Irish economy to be in mid-cycle expansion over the next 6 months period. The number of analysts expecting the economy to be in a late-recession over the next 6 months dropped from 43% in August to 33% in September.