Economic review
A catch-up for the European economy?
Economic growth in the eurozone is lower than in the United States this year, partly because Europeans have spent a smaller proportion of their savings than expected. They have also continued to save a larger portion of their disposable income. But this means there is now relatively more recovery potential. The European labour market continues to tighten and the current unemployment rate of 6.5% is the lowest since 1999. As a result, employees have a strong negotiating position, which could result in more CLA wage growth and an improvement in purchasing power, at least in the short term.
Fluctuating inflation figures and a rate cut
US inflation rates stabilised at around 3%, remaining well above the Fed’s 2% inflation target. The labour market in the United States is also relatively tight, so wages could rise faster than prices for some time, but there is still no talk of a wage-price spiral. In the eurozone, the inflation rate fluctuated between 2.4% and 2.9%. Despite this, the ECB (European Central Bank) decided to cut its policy rate by 25 basis points in June after two years of interest rate hikes. There was however little doubt that this would happen in the run-up to the decision, so it came as no surprise to the financial markets.
Macron's surprise
Economic growth in France and Germany is lagging behind that of southern countries in the eurozone. Production-intensive Germany in particular is struggling to export its products to countries such as China. However, it is a good thing that the southern euro area countries are achieving good results and are thus able to grow their way out of debt to some extent. As a result, the eurozone is avoiding the risk of fiscal fragmentation, with southern countries having to pay significantly more to raise capital than western countries. Yet in June, French President Emmanuel Macron revived the debate over Europe’s sovereign debt. In response to a major loss of his party in the European elections, he decided to announce new parliamentary elections. Political uncertainty in France creates more uncertainty about the future of the EU as a whole, and certainly also about the development of France’s debt. Relief that the radical right bloc did not win led to a positive market reaction. However, this sentiment is likely to reverse if the French budget is not in order.