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Macro Economic Environment

Dernière mise à jour : 15 juil. 2020

" After the worst quarter in 70 years, comes the recovery "

... points out that the quarter just ended is the worst ever (or since you can compare quarterly data between countries calculated using a homogeneous method) which at the same time is begining to show signs of a turnaround. Obviously those analysis are no definitive data on Gross Domestic Product but the evaluations will draw useful information from publications such as those of the IHS Markit company .

Figure 1 - The global SME index and the GDP ( IHS Markit , 2020)

Based on the strong correlation between the PMI index and the changes in GDP, the aforementioned research institute analysis records an increase in June equal to 11.4 points, which together with the increase of over 10 points found in the month of May brings the index to the highest level reached in the last five months.

Starting from the US context, in June there were strongly negative economic data in absolute terms, due to the maneuvers put in place to contain the pandemic, but surprisingly better than expected. Obviously the general picture is ambiguous and difficult to evaluate.

At the last Fed meeting, Governor Powell indicated that there are still strong uncertainties about the recovery of the growth trend in the economy which is determined by the growing trend of the contagions from Covid-19. The projections of the central bank on GDP have been revised downwards and " forward guidance " ensures that the rates of the interest will not suffer increases until the end of 2021.

The price level is not currently affected by the massive injections of liquidity and there is no fear of the possible recovery of inflation which in May stood at 0.1%. Furthermore , in the same month there was an increase in orders for durable goods of 15.8 % compared to the previous year , an encouraging sign from a prospective perspective.

A highly unexpected figure of new employees (in the non-agricultural sectors) in June which increased by 4.76 million, contravening the estimate of an increase of 3.7 million. This has resulted in a significant decrease in the unemployment rate which has decreased from 13.3 % to 11.1 %.

In Europe, the macroeconomic scenario shows a higher data than expected, although the economic consequences of Covid-19 remains evident.

Starting from the monetary policy there was a further quantitative easing by the European Central Bank which increased the Pandemic Emergency Purchase Programme (PEPP) by an additional 600 billion Euros, for a total amount of 1.350 billion euro..

Against an estimate of a contraction of industrial production in the euro area of 18.5%, a drop of 17.1% was recorded in April.

Unemployment rate was also above expectation, which increased to 7.3% from 7.1%, but by less than forecast analysis. Finally, retail sales registered a decrease of 11.7% on a monthly basis and 19.6% on an annual basis.

Returning to the analysis of the data processed by IHS Markit, it is very interesting to observe the correlation between the containment measures of the coronavirus and the PMI as shown in the graphs below.

Figure 2 - The global Pmi index and the Covid-19 containment index ( IHS Markit , 2020)

Figure 3 - The national composite SME index and the Covid-19 containment index ( IHS Markit , 2020)

It can be observed that the two nations with the highest PMI and above the threshold of 50, mainly China and France, show basic containment indices in June . It should be remembered that the PMI value of 50 marks the reference to assess whether an economic expansion or recession is going through.

The more developed economies as well as the emerging ones show a consistent recovery in output following the easing of the lockdown.

This shows that despite the extraordinary measures of social distancing, the global economy is returning to a path of growth.

by Professor Francesco Daveri

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