The end of a cycle?

OFCE Analysis and Forecasting Department

This text is based on the 2018-2019 outlook for the world economy and the euro zone, a full version of which is available here [in French].

Global growth remained buoyant in 2017, allowing both the recovery and the reduction in unemployment to continue, especially in the advanced countries where growth rose to 2.3%, up from 1.6% the previous year. Although there are still a few countries where GDP has not recovered to its pre-crisis level, this improvement will gradually erase the stigma of the Great Recession that hit the economy 10 years ago. Above all, activity seemed to be gathering pace at the end of the year as, with the exception of the United Kingdom, annual GDP growth continued to pick up pace (Figure 1). However, the gradual return of the unemployment rate to its pre-crisis level and the closing of growth differentials, particularly in the United States and Germany, which had widened during the crisis, could foreshadow a coming collapse of growth. The first available estimates of growth in the first quarter of 2018 seem to lend credence to this assumption. Continue reading “The end of a cycle?”

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The Janus-Faced Nature of Debt

by Mattia Guerini, Alessio Moneta, Mauro Napoletano, Andrea Roventini

The financial and economic crises of 2008 have been intimately interwined with the dynamics of debt. As a matter of fact, a research by Ng and Wright (2013) reports that in the last thirty years all the U.S. recessions had financial origins. Continue reading “The Janus-Faced Nature of Debt”

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Trends in labour force participation rates in Europe during the Great Recession: The role of demographics and job polarization

By Guillaume Allègre and Gregory Verdugo

In Europe as in the United States, employment fell considerably during the Great Recession. Moreover, over the last few decades, the labour markets in both regions have been reshaped by the forces of automation and globalization. However, the response of labour force participation to these changes has varied from country to country. One of the most significant developments in the US labour market over the past decade has been the decline in labour force participation. Between 2004 and 2013, the labour force participation rate for the group aged 25 to 54 fell by 2.6 percentage points (from 83.8% to 81.1%), a decline that has persisted well beyond the end of the Great Recession. In the EU-15, on the other hand, the participation rate for this age group increased by 2 percentage points during the same period (from 83.7% to 85.6%), despite low growth and the persistence of high levels of unemployment. Continue reading “Trends in labour force participation rates in Europe during the Great Recession: The role of demographics and job polarization”

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The reduction of the US Fed’s balance sheet: When, at what pace and with what impact?

By Paul Hubert

US monetary policy began to tighten in December 2015, with the Fed’s key rate moving from a target range of 0 – 0.25% to 0.75 – 1% in 15 months. To complement its monetary policy, the Fed also manages the size of its balance sheet, which is a result of programmes to purchase financial stock (also called quantitative easing programmes). The Fed’s balance sheet now comes to 4,400 billion dollars (26% of GDP), compared with 900 billion dollars in August 2008 (6% of GDP). The improvement in the economic situation in the United States and the potential risks associated with QE pose questions about the timing, pace and consequences of the normalization of this unconventional tool. Continue reading “The reduction of the US Fed’s balance sheet: When, at what pace and with what impact?”

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Could Trump really re-industrialize the United States?

By Sarah Guillou

Callicles to Socrates: “What you say is of no interest to me, and I will continue to act as I have previously, without worrying about the lessons you claim to give.” Gorgias, Chapter 3

Only 8% of the jobs in the United States are now in industry. Donald Trump, the new President of the United States, wants to reindustrialize America and is speaking out against the opening of factories abroad and the closing of local factories. Is there any economic rationale for the indiscriminate communications of the new US President? Continue reading “Could Trump really re-industrialize the United States?”

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