Author Archive

Frankfurt, we have a gender problem

The Eurogroup has designated Spanish finance minister Luis de Guindos as candidate for the position of Vice President of the European Central Bank to succeed Vítor Constâncio in June 2018, for a non-renewable eight-year term. This nomination has increased expectations that Bundesbank President Jens Weidmann will become the next ECB President after Mario Draghi’s term […]

Europe chart of the week – French unemployment

France registered the largest drop in unemployment in about ten years in Q4 2017. In metropolitan France, the number of unemployed fell by 205,000 to 2.5 million people, pushing the ILO unemployment rate down to 8.6% of the labour force (-0.7pp), its lowest level since Q1 2009. The improvement was broad based across age groups […]

Euro area inflation: the Phillips curve and the ‘broad unemployment’ hypothesis

We agree with the ECB that the euro area Phillips curve is alive, albeit “flatter and non-linear”. In particular, structural changes in the labour market have resulted in larger slack than implied by standard unemployment figures, including a large number of workers marginally attached to the labour force. Our analysis confirms that such increase in […]

Europe chart of the week – underemployment

This week, Eurostat published a set of very important indicators of euro area labour market conditions, the so-called U6 ‘broad unemployment’ rates for Q3 2017. The database includes several metrics of underemployment which the ECB considers as a good proxy for labour market slack. The main underemployment series includes total unemployment as well as underemployed […]

Core inflation still “some distance” from ECB’s criteria

Euro area core inflation rebounded to 1.0% in January, from 0.9% in the previous month, in line with expectations. There is no escaping the fact that the ECB remains “some distance” from meeting its inflation criteria, as Peter Praet said this week. Our inflation forecasts are consistent with a delayed normalisation in the ECB’s stance […]

Europe chart of the week – The beginning of the ‘re-anchoring’

The ECB will be pleased by its latest Survey of Professional Forecasters (SPF). The headlines are unambiguously positive, fuelled by the uninterrupted improvement in economic data, with expectations of GDP growth and HICP inflation revised higher for the next couple of years, sometimes substantially. Euro area GDP is now expected to expand by 2.3% in […]

ECB meeting preview: guide me if you can!

We expect no policy decision and no major change in the ECB’s communication at its 25 January meeting. There is no incentive for the ECB to fuel further hawkish market re-pricing at this stage, especially after core inflation disappointed again and the EUR has strengthened once more. The only small change we see as possible […]

Upside risks to wages from IG Metall negotiations

German wage negotiations are in full swing amid growing calls for strikes. This comes at a crucial time for the ECB as strong growth and falling unemployment are expected to feed into higher inflation. IG Metall is by far the most important union to watch, representing almost 4 million German workers and being seen as […]

2018 ECB outlook – Mission: possible

Our first choice as the title for our 2018 ECB outlook was “The courage not to act”, but regular readers will know that we used this homage to Ben Bernanke earlier this year. Yet our faith in the ECB’s courage knows no bounds and this still feels relevant today, with the caveat that the ECB […]

ECB closer to the 2% inflation target than meets the eye

During an uneventful ECB press conference on Thursday, attention centred on the new staff projections. The headline projections were in line with expectations, albeit slightly higher on GDP growth and lower on inflation. The key word was “confidence”- in a strong expansion leading to a “significant” reduction in economic slack, as well as in the […]

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