⚠️Automatic translation pending review by an economist.
On October 15, 2019, BSI Economics organized a meeting to discuss the financial and economic conditions in Europe. The meeting brought together a diverse group of experts: a business cycle economist, a macroeconomist, the chief economist of a Swiss private bank, and an economist specializing in financial regulation. Discussions focused on the economic situation in the eurozone.
The discussions covered the following topics:
· Due in particular to the ongoing trade war between the United States and China and the uncertainties surrounding Brexit, the IMF and the OECD have revised their global growth forecasts for 2019 and 2020 downwards. In thisgloomy international context, the economies of some countries are more resilient than others. The measures announced by the European and American central banks are reassuring the financial markets and thus helping to absorb the bad news on growth.
· Germany is suffering greatly from Brexit and the slowdown in international trade due to its heavily export-oriented industry. In addition, the difficulties facing its automotive industry, resulting in particular from new European anti-pollution standards, are exacerbating this phenomenon. A technical recession is possible at the end of the year. However, there are some positive signs: output is still above potential and the construction sector remains buoyant. Real estate fundamentals are strong in Germany, thanks in particular to robust household purchasing power, a backlog of housing renovations and historically moderate prices.
· The Spanish economy could also be significantly impacted by the decline in vehicle registrations and the slowdown in intra-eurozone trade. Domestic demand remains solid, but activity continues to be mainly export-driven.
· In Italy, the decline in interest rates of around 200 basis points since the beginning of the yearsuggests a very modest rebound in growth, closer to its long-term trend, thanks to the wealth effect on households (private consumption) and business investment.
· Finally, France is holding up better than its neighbors due to a more balanced economy between its internal components and external demand. The tax measures currently in place (housing tax and 2020 budget) are encouraging short-term savings accumulation, but should lead to a revival in consumption in mid-2020. Household investment figures in France have surprised on the upside despite the reduction in government aid. This trend can be explained by rising employment, lower interest rates, and strong purchasing power.
· On the French savings market, the impact of lower interest rates on the business model of financial and insurance institutions: the decline in interest rates to clearly negative levels (the 10-year OAT has a yield of -0.2%) threatens the long-term financial stability of euro-denominated life insurance funds. Despite the significant reserves available to insurers, a sustained decline in interest rates or a sharp rise in rates could threaten their solvency.
