William De Vijlder

Group Chief Economist BNP Paribas

EcoTV Week - 06/22/2018 - Inclusive communication fosters inclusive growth

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ECB

ECB: nervousness postponed

Skilful expectations management meant that the announcement of the end of the net purchases of the QE program didn’t cause any stirs. Markets have applauded the introduction of date and state dependent guidance. In the course of next year, nervousness will increase again as investors will wonder whether conditions are met to warrant a first rate hike in this cycle.

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financial markets

Drivers of international contagion

High international correlations of markets can reflect the existence of global shocks, global swings in risk aversion or contagion. Contagion can be caused by a wide variety of factors. Taking into account the nature of the contagion is important when assessing its economic consequences.

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Italy economy

Italy: markets act as the boy who cried wolf

Political uncertainty in Italy has caused market turmoil with significant spillover effects within but also beyond the Eurozone. Contagion within the eurozone was of a different nature than in 2011. With a new government in place, attention will now focus on its economic policy, in particular in terms of public finances.

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eurozone tagcloud3

Eurozone: domestic support, global risks

The ECB meeting account shows a central bank which is confident about the growth outlook despite the recent softness of data. The concerns relate to global factors which have become more prominent: the threat of trade protectionism. This concern is also echoed by the Federal Reserve.

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Emerging markets: a sudden chill

In recent years, emerging market issuers, in particular corporates, have raised huge amounts of USD debt, thereby increasing their sensitivity to an appreciation of the dollar. Rising US treasury yields, a sudden strengthening of the dollar and country-specific issues have triggered considerable portfolio outflows and a weakening of emerging currencies.

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doutes

Uncertainty and bad inflation risk on the rise

Markets have reacted in a calm way to the US decision to withdraw from the Iran nuclear deal. Despite the increase in geopolitical uncertainty, there has been no flight to safety and US treasury yields have followed oil higher. Should oil prices continue to increase, this would end up acting as a headwind to growth.

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Balancier

Constraints on monetary policy push towards unconstrained investing

February’s surge in volatility, the recent dip in the eurozone’s growth momentum, the prospects of a series of US key rate hikes and of the ECB’s change of tone as it prepares to halt quantitative easing (QE) are all factors that risk intensifying arguments in favour of high conviction approaches to asset management in the months ahead: unconstrained investing makes a comeback.

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panneau zone euro

Eurozone: softer sentiment, fundamentals still strong

Sentiment indicators have softened globally in recent months, including in the eurozone. The historical experience is varied although cyclical declines in eurozone sentiment have tended to last quite a number of months. Considering the current strong fundamentals, one would expect that weaker sentiment merely points to some moderation of growth.

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consumption

Eurozone: a peak in consumer confidence?

Turning points in the assessment of making major purchases lead those of the overall consumer confidence indicator.The difference of how top and bottom quartile income households assess their spending on major purchases is highly cyclical and its turning points lead those of consumer confidence. Based on recent observations, this suggests that the cyclical peak in consumer confidence is near.

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Eurozone: pent-up consumption, sign of hope or concern?

In most eurozone countries, durable goods consumption in relation to income is still below the previous cyclical peak
Consumer confidence tends to be higher than the previous peak. This combination suggests there is pent-up consumer demand but it could also reflect lingering households’ concerns about the lasting nature of the current robust growth.

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investissement en zone euro

Eurozone: pent-up corporate investment demand?

Eurozone business investment in relation to GDP is still below the previous cyclical peak but the difference is small, implying that the argument of pent-up demand isn’t that strong. However, the picture varies a lot depending on the country. In most countries, including the big four, the business climate is above the level registered at the end of 2007. This means that the investment/GDP ratio still has upside potential provided that confidence is translated into spending.

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William De Vijlder

About William De Vijlder

Group Chief Economist BNP Paribas
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