Trump’s budget policy: Mortgaging the future?

By Christophe Blot

While the momentum for growth has lost steam in some countries – Germany, France and Japan in particular – GDP in the United States is continuing to rise at a steady pace. Growth could even pick up pace in the course of the year as a highly expansionary fiscal policy is implemented. In 2018 and 2019, the fiscal stimulus approved by the Trump administration – in December 2017 for the revenue component, and in February 2018 for the expenditure side – would amount to 2.9 GDP points. This level of fiscal impulse would come close to that implemented by Obama for 2008. However, Trump’s choice has been made in a very different context, since the unemployment rate in the United States fell back below the 4% mark in April 2018, whereas it was accelerating 10 years ago, peaking at 9.9% in 2009. The US economy should benefit from the stimulus, but at the cost of accumulating additional debt. Continue reading “Trump’s budget policy: Mortgaging the future?”

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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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