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112 matches for " fiscal policy":
It is fair to say that the economic debate on fiscal policy has shifted dramatically in the last 12-to-18 months.
Note: This updates our initial post-election thoughts, adding more detail to the fiscal policy discussion. Apologies for the density of the text, but there's a lot to say. Our core conclusions have not changed since the election result emerged. The biggest single economic policy change, by far, will be on the fiscal front.
Judging by interactions with readers in the past few weeks, fiscal policy is one of the most important topics for EZ investors as we move into the final stretch of the year.
Chancellor Sunak's "temporary, timely and targeted" fiscal response to the Covid-19 outbreak, and the BoE's accompanying stimulus measures, won't prevent GDP from falling over the next couple of months.
Friday's data added further colour to the September CPI data for the Eurozone.
It might seem odd to describe a meeting at which the Fed raised rates for only the third time since 2006 as a holding operation, but that just about sums up yesterday's actions. The 25bp rate hike was fully anticipated; the forecasts for growth, inflation and interest rates were barely changed from December; and the Fed still expects a total of three hikes this year.
We aren't in the business of trying to divine the explanation for every twist and turn in the stock market at the best of times, and these are not the best of times.
EZ investors are still trying to come to grips with last week's terrifying price action, culminating in the 12.5% crash in equities on Thursday
Economic and financial conditions continue to deteriorate sharply in LatAm.
Brazil's central bank is in a very delicate situation. The economy is on the verge of another recession, but at the same time the BRL is falling, inflation expectations are rising and the inflation rate is overshooting. Fiscal policy is also tightening to restore macro stability magnifying the squeeze on growth.
At the end of last year, China's Central Economic Work Conference set out the lay of the land for 2019. Cutting through the rhetoric, we think the readout implies more expansionary fiscal policy, and a looser stance on monetary policy.
Argentina's government continues to show signs of reining in fiscal policy, with the primary budget balance improving steadily over the last year.
Chancellor Javid's resignation, only eight months after assuming the role, is the clearest sign yet that the Johnson-led government wants fiscal policy to play a bigger part in stimulating the economy over the next couple of years.
The White House Budget for fiscal 2018, released last week, has no chance of becoming law in anything like its current form, so we don't propose to spend much time dissecting it. But we do need to set out our view on what might actually happen to fiscal policy over the next few months, because it potentially could make a material difference to the pace, and ultimate extent, of Fed tightening.
The two-year budget deal agreed between the administration and the Republican leadership in Congress will avert a federal debt default and appears to constitute a modest near-term easing of fiscal policy. The debt ceiling will not be raised, but the law imposing the limit will be suspended through March 2017, leaving the Treasury free to borrow as much as necessary to cover the deficit. As a result, the presidential election next year will not be fought against a backdrop of fiscal crisis.
Many commentators have assumed that the new Chancellor's pledge to "reset" fiscal policy and to stop targeting a budget surplus in this parliament means that fiscal policy will support growth in economic activity next year.
Founder and chief U.S. Economist Ian Shepherdson on U.S. Fiscal Policy and the upcoming jobs report.
Japan's CPI inflation was unchanged, at 0.2% in February.
The path of new home sales over the past couple of years has followed the mortgage applications numbers quite closely.
Today's ECB meeting will mainly be a victory lap for Mr. Draghi--it is the president's last meeting before Ms. Lagarde takes over--rather than the scene of any major new policy decisions.
The economic recovery would have lost more momentum last year had consumers not delved so deeply into their pockets. Real household spending increased by 0.7% and 0.8% quarter-on-quarter in Q3 and Q4 respectively, in contrast to investment and exports, which fell in both quarters.
In yesterday's Monitor, we suggested that China's monetary policy stance is now easing.
We remain negative about the medium-term growth prospects of the Mexican economy.
Our analysis of the Q3 activity and GDP data in yesterday's Monitor strongly suggests that China's authorities will soon ready further stimulus.
China's official real GDP growth slowed to 6.0% year-over-year in Q3, from 6.2% in Q2 and 6.4% in Q1. Consecutive 0.2 percentage points declines are significant in China.
In this Monitor, befitting these uncertain times, we set out the decision tree facing Chinese policymakers.
India's GDP report for the second quarter, due on Friday, is likely to show a decent rebound in growth from the first quarter.
Friday's advance PMI data for the Eurozone added further evidence of stabilisation in the economy after the sharp slowdown in GDP growth since the beginning of last year.
Japan's national CPI inflation has peaked, falling to 0.7% in May from 0.9% in April.
LatAm's economies are gradually rebounding, boosted by easier monetary policy in most countries, falling inflation, and a relatively calm external backdrop.
The Brazilian Central Bank's policy board, COPOM, left the Selic rate at 6.50% on Wednesday, as widely expected.
The MPC's unanimous decision to keep Bank Rate at 0.75% and the minutes of its meeting left little impression on markets, which still see a higher chance of the MPC cutting Bank Rate within the next 12 months than raising it.
Investor sentiment in the Eurozone showed further signs of recovery yesterday. The ZEW expectations index rose strongly to 48.4 in January from 34.9 in December, and the leap since the trough in October ranks among the strongest rebounds ever recorded in the index.
After a disappointing run of monthly data, the huge surplus on the main "PSNB ex ." measure of borrowing in January must have been greeted with relief at the Treasury.
The most striking feature of the Fed's new forecasts is the projected overshoot in core PCE inflation at end-2019 and end-2020, which fits our definition of "persistent".
The public finances continue to heal rapidly, suggesting that the Chancellor should have scope to soften his fiscal plans substantially in the Autumn Budget.
Further evidence that the general election has transformed business confidence emerged yesterday, in the form of January's CBI Industrial Trends survey.
Punished by the global economic slowdown depressing commodity prices, the Mexican economy is now making a gradual comeback, thanks to the continuing strength of its main trading partner, increasing public expenditure on key infrastructure projects, and accommodative monetary policy.
Monetary policy usually is the first line of defence whenever a recession hits.
Yesterday's final manufacturing PMIs confirmed that the headline index in the euro area rebounded further last month.
For sterling traders, no election news is good news.
Data released last week confirmed that Mexico's economy stumbled in the first half of the year, hurt by a temporary shocks in both the industrial and services sectors, and heightened political uncertainty, due to policy mistakes at the outset of AMLO's presidency.
Financial markets have gone into another tailspin over the last fortnight, triggered by rising concern about the possibility of a no-deal Brexit and President Trump's threat of further tariffs on Chinese goods.
Chancellor Sunak faces a tough first gig on Wednesday, when he delivers the long-awaited Budget.
Colombia was one of the fastest growing economies in LatAm in 2018, and prospects for this year have improved significantly following June's presidential election, with the market-friendly candidate, Iván Duque, winning.
India's headline GDP print for the third quarter was damning, with growth slowing further, to 4.5% year- over-year, from 5.0% in Q2.
The Fed's unscheduled 50bp cut on Tuesday opens up some space for Asian central banks to follow suit.
GDP growth in India slowed sharply in the first quarter of the year, as expected--see here--opening the door for the RBI to cut interest rates further at its policy announcement tomorrow.
Chile's unadjusted unemployment rate fell to 7.1% in July-to-September, from 7.3% in June-to-August, but it was up from 6.7% in September last year.
We're hearing a good deal of speculation about the dotplot after next week's FOMC meeting, with investors wondering whether the median dot will rise in anticipation of the increased inflation threat posed by substantial fiscal loosening under the new administration. We suspect not, though for the record we think that higher rate forecasts could easily be justified simply by the tightening of the labor market even before any stimulus is implemented.
The Brazilian industrial sector started this year on a very downbeat note, despite a 2% month-to-month jump in output. The underlying trend in activity is still very weak. Production fell 5.2% year-over-year.
Brazil is now paying the price of President Rousseff's first term, which was characterized by unaffordable expansionary policies. As a result, inflation is now trending higher, forcing the BCB to tighten at a more aggressive pace than initially intended--or expected by investors--depressing business and investment confidence.
Demand in German manufacturing slid at the start of Q3.
Yesterday's economic news in the French economy was solid.
The Brazilian economy enjoyed a decent Q2, with GDP rising 0.2% quarter-on-quarter, despite the disruptions caused by the truck drivers' strike, after a 0.1% decline in Q1.
Gilts continued to rally last week, with 10-year yields dropping to their lowest since October 2016, and the gap between two-year and 10-year yields narrowing to the smallest margin since September 2008.
This Budget will be remembered as the moment when the Government finally threw in the towel on plans to run sustainable public finances.
A dovish speech by external MPC member Michael Saunders was the primary catalyst for a renewed fall in interest rate expectations last week.
Chancellor Hammond likely will broadly stick to the current plans for the fiscal consolidation to intensify next year when he delivers his second Budget on Thursday.
At the start of the year, #euroboom was the moniker used in financial media to describe the EZ economy.
The manufacturing indexes for January showed a small improvement for the biggest economies in LatAm: Brazil and Mexico. In Brazil, the PMI manufacturing index increased marginally to 50.7 in December from 50.2 in November, thanks to stronger output and new orders components, which rose together for the first time in ten months.
Yesterday's final manufacturing PMIs for October were grim, but they told investors nothing they don't already know.
Latin American markets and policymakers are bracing for another complicated week, after the second, and more aggressive, Fed emergency move over the weekend.
In previous Monitors--see here--we've suggested that, thanks to the coronavirus, China simply will lose some of the spending that would have gone on during the holiday this year.
The latest GDP data confirm that the economy ended last year on a very weak note.
The Fed paved the way with a 50bp emergency rate cut on March 3, with more to come.
We often hear that the large gap between the slowing rising path for interest rates anticipated by the MPC and the flat profile expected by markets is justified because markets have to price-in all of the downside risks to the economic outlook posed by Brexit.
Yesterday's ECB meeting was a tragedy in two acts. Markets were initially underwhelmed by the concrete measures unveiled, and they were then shell-shocked by Ms. Lagarde's performance in the press conference.
The U.K. general election is the main event in today's European calendar, but the first official ECB meeting and press conference under the leadership of Ms. Lagarde also deserves attention.
Two years ago markets believed that the institutional setup of the Eurozone would be a straitjacket on the ECB, preventing QE. Aggressive policy actions since then have proven this hypothesis wrong. But inflation remains low and sentiment data weakened ominously in the first quarter.
Brazil's economic data last week were appalling. The IPCA-15 price index rose 1.3% month-to-month, the fastest pace in 12 years, pushing the annual rate to 7.4% in mid-February from 6.7% in mid-January,well above the 6.5% upper bound of the BCB's target range.
Trade talks between the U.S. and China officially resumed this week, with the first face-to-face meeting of the main negotiators taking place yesterday in Shanghai.
The more headline hard data we see in the Eurozone, the more we are getting the impression that 2019 is the year of stabilisation, rather than a precursor to recession.
Our view that households will continue to spend more in the first half of this year, preventing the economy from slipping into a capex-led recession, was not seriously challenged yesterday by the BRC's Retail Sales Monitor.
In an interview with Bloomberg on Friday, PBoC Governor Yi Gang hinted at the intended policy if the trade war escalates.
Japan's Ministry of Finance yesterday admitted falsifying documents submitted to the country's parliament during a corruption probe last year.
The Office for Budget Responsibility has decided to press ahead with the publication of new fiscal forecasts on November 7, despite the government's decision to postpone the Budget until after the next election.
A big picture approach to the China trade war, from the perspective of Mr. Trump, is reasonably positive. The president very clearly wants to be re-elected, and he knows that his chances are better if the economy and the stock market are in good shape.
Yesterday's German ZEW investor sentiment survey provided the first clear evidence of the coronavirus in the EZ survey data.
In light of Mr. Draghi's Sintra speech, we take this opportunity to give an update on the BoJ's stance, ahead of the meeting on Thursday.
We have set out in recent Monitors the differences in the economic and political environment across Latin America, but the plunge in oil prices adds a new element to the analysis.
The global coronavirus pandemic is hitting the LatAm economy at a particularly vulnerable time, following last year's stuttering economic recovery, temporary shocks in key economies and the effect of the global trade war.
Central banks in Mexico and Colombia kept their main interest rates on hold last week, due to recent volatility in the currency markets. Policymakers acknowledged the downside risks to growth, particularly from low commodity prices, but inflation fears, triggered by currency weakness, mean they will not be able to ease if growth slows.
February's COPOM meeting minutes again signalled that Brazil's central bank will stick with its cautious approach to monetary policy.
"Is EZ fiscal stimulus on the way?" is a question that we receive a lot these days.
Markets greatly cheered the Conservatives' landslide victory on Friday, but remained cautious on the potential for the MPC to return to the tightening cycle it started in 2017.
We look for yet another unanimous vote by the MPC to keep Bank Rate at 0.75% on Thursday, with no new guidance on the near-term outlook.
The sovereign debt crisis in the euro area was a macroeconomic horror story
A powerful cocktail of cheap money, labour and commodities, allowed to infuse by a hiatus in the government's austerity programme, has reinvigorated the U.K. economy over the last three years. But these supports are now weakening while new headwinds are emerging. The U.K. economy is heading for a pronounced slowdown, one that is under-appreciated by most forecasters and under-priced by markets.
January's public finance data, released today, take on particular importance because they are the last to be published before the Chancellor delivers his first Budget on March 8. The public finances nearly always swing into surplus in January, primarily because the deadline for individuals to submit self-assessment--SA--tax returns for the previous fiscal year is at the end of the month. Firms also pay their third of four payments of corporation tax for their profits in the current fiscal year.
The Chancellor probably can't believe his luck. Public borrowing has continued to fall this year at a much faster rate than anticipated by the OBR, despite the sluggish economy.
The run of better-than-expected public borrowing figures ended abruptly with the publication of March data yesterday.
The minutes from Banxico's August 11 monetary policy meeting--in which Board members unanimously voted to keep rates on hold at 4.25%--confirmed that the bank's policy guidance remains broadly neutral. Subdued economic activity, favourable inflation and gradual fiscal consolidation explain policymakers' position.
The Fed's unanimous vote for a 25bp rate hike was overshadowed by the bump up in the dotplot for next year, with three hikes now expected, rather than the two anticipated in the September forecast. Chair Yellen argued the uptick in the rate forecasts was "tiny", but acknowledged that some participants moved their forecasts partly on the basis that fiscal policy is likely to be eased by the new Congress.
Mr. Macron will be in Berlin today with the message that France wants a strong Eurozone and a tight relationship with Germany. Friendly overtures between Paris and Berlin are good news for investors; they reduce political uncertainty while increasing the chance that the economic recovery will continue. But it is too early to get excited about closer fiscal coordination, let alone a common EZ fiscal policy and bond issuance.
The two key planks of the argument that a substantial easing of fiscal policy won't be inflationary are that labor participation will be dragged higher, limiting the decline in the unemployment rate, while productivity growth will rebound, so unit labor costs will remain under control.
Expectations are running high that the Autumn Statement on November 23 will mark the beginning of a more active role for fiscal policy in stimulating the economy. The MPC's abandonment of its former easing bias earlier this month has put the stimulus ball firmly in the new Chancellor's court.
Chief U.K. Economist Samuel Tombs on the government's fiscal policy
It has become pretty clear over the past couple of weeks that Hillary Clinton will be the next president, so it's now worth thinking about how fiscal policy will evolve over the next couple of years.
Colombia was likely the fastest growing economy in LatAm in 2015, but it is set to slow this year as monetary and fiscal policy are tightened, and commodity prices remain under pressure during the first half of the year, at least. Economic activity was surprisingly resilient during 2015, especially during the second half, despite the COP's sell-off, high inflation, and subdued consumer confidence.
We're not expecting drama from Chair Yellen's semi-annual Monetary Policy Testimony in the Senate today. Dr. Yellen will want to keep alive the idea of a rate hike next month, but she will not signal that action is likely, given the continuing lack of clarity on the path of fiscal policy.
Fiscal policy is in limbo until a new leader of the Conservative party has been elected on September 9. Shortly after, however, a new Budget--or a Budget disguised as an Autumn Statement--will be held.
A shutdown of the federal government, which could happen as early as this weekend, is a political event rather than a macroeconomic shock. But if it happens--if Congress cannot agree on even a shortterm stop-gap spending measure in order to keep the lights on after the 28th--it would demonstrate yet again that the splits in the House mean that the prospects of a substantial near-term loosening of fiscal policy are now very slim.
The uncertainty over the new U.S. administration's economic policies new is clouding the outlook for the Eurozone economy. The combination of loose fiscal policy and tight monetary policy in the U.S. should be positive for the euro area economy, in theory. It points to accelerating U.S. growth--at least in the near term--wider interest rate differentials and a stronger dollar. In a " traditional" global macroeconomic model, this policy mix would lead to a wider U.S. trade deficit, boosting Eurozone exports.
Reviving Capex and Fiscal Policy to Lift Growth...Provided Parliament Averts a No-Deal Brexit
The latest public finance figures continue to imply that the Chancellor will be able to change course later this year in the Autumn Budget so that fiscal policy doesn't drag on GDP growth next year.
The preliminary estimate of first quarter GDP likely will confirm that the economic recovery lost considerable pace in early 2016. Bedlam in financial markets in January and business fears over the E.U. referendum are partly responsible for the slowdown. The deceleration, however, also reflects tighter fiscal policy, uncompetitive exports, and the economy running into supply-side constraints.
The euro area's record-high external surplus has prompted commentators to suggest that the zone has room to loosen fiscal policy to support growth, or at least relax the deficit reduction rules.
The recent plunge in oil prices is another positive development, alongside looser fiscal policy and the striking of a Brexit deal with the E.U., pointing to scope for GDP growth to pick up next year.
Two fiscal deadlines are on the near-horizon.
Will EZ services hold their own amid weakness in manufacturing?
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