Category Archives: Euro area

6/2/21: Longer Trends in Economic Uncertainty


Quite dramatic trends in terms of rising economic uncertainty over the last 21 years:

And, not surprisingly, the rise of uncertainty in Europe, the U.S., and globally pre-dates the Covid19 pandemic. In fact, Europe has been experiencing dramatically elevated uncertainty levels since the start of the Euro area crisis, while the U.S. saw a virtually exponential rise in uncertainty from 2017 on. Global measures of uncertainty have been running high through 2016 and rose dramatically thereafter. 

While amelioration in the Covid19 pandemic dynamics is likely to lower the levels and the volatility of the uncertainty in global economic systems, it is highly unlikely to return us to the pre-Global Financial Crisis state of affairs.

3/10/20: Eurocoin Leading Growth Indicator 3Q 2020


Eurocoin, a leading growth indicator for the euro area published by CEPR and Banca d'Italia posted another negative (recessionary) reading in September (-0.31) after marking peak growth contraction of COVID19 pandemic period in August (-0.64). This puts Eurocoin in negative territory for the 6th consecutive month since March 2020. 

Current forecast for 3Q 2020 growth remains at -3.5 percent q/q. Deflationary pressures are also building up. Euro area's 12 months average HICP forecast for 3Q 2020 stands at around 0.6 to 0.5.

As the chart above shows, Eurozone remains deeply in a recessionary territory based on Eurocoin forecasts and inflation dynamics. Longer term growth averages are shown in the chart below:

Overall, as noted above, one must take all leading indicators and forecasts with some serious warnings attached: we are in an environment where past models for forecasting economic aggregates become severely challenged.

17/9/20: Exploding errors: COVID19 and VUCA world of economic growth forecasts


Just as I covered the latest changes in Eurozone growth indicators (, it is worth noting the absolutely massive explosion in forecast errors triggered by the VUCA environment around COVID19 pandemic.

My past and current students know that I am a big fan of looking at risk analysis frameworks from the point of view of their incompleteness, as they exclude environments of deeper uncertainty, complexity and ambiguity in which we live in the real world. Well, here is a good illustration:

You can see an absolute explosion in the error term for growth forecasts vs actual outrun in the three quarters of 2020 so far. The errors are off-the-scale compared to what we witnessed in prior recessions/crises. 

This highlights the fact that during periods of elevated deeper uncertainty, any and all forecasting models run into the technical problem of risk (probabilities and impact assessments) not being representative of the true underlying environment with which we are forced to work.  

17/9/20: Eurocoin Leading Growth Indicator 3Q 2020


Eurocoin, CEPR & Banca d'Italia leading growth indicator for Euro Area economy is pointing to renewed weaknesses in the Eurozone economy in August, falling to its lowest levels in the COVID19 pandemic period:

As the chart above shows, Eurocoin fell from -0.5 in July to -0.64 in August, its lowest reading since June 2009. The forecast September indicator is at -0.30. Through August, we now have five consecutive months of sub-zero readings. Based on July-August data and September forecast, we are looking at a GDP contraction of 3.5 percentage points in 3Q 2020. This is mapped out in the chart below:

As the chart above shows, average annual growth rate in the Eurozone for 2020 is now sitting at -6,33 percent, far worse than the previous low of -0.575 in 2009. In quarterly readings, we now have two actual and one forecast quarters of 2020 all performing worse than the peak of the Global Financial Crisis / Great Recession contraction (see green entry in the chart above).

As before the COVID19 crisis, Eeurozone economy is performing woefully. On no time horizon did Euro area manage to achieve average annual growth of 2% (chart above).

3/7/20: ECB Jumping the Proverbial Shark?

ECB's money-printing press has been running overtime these weeks. So let's put the Euro area central banks' monetary policy shenanigans into perspective, comparing them to the Global Financial Crisis (GFC) related measures, the Euro area sovereign debt crisis and the subsequent painful recovery:

Good thing: ECB has deployed COVID19 response at scale and fast. Bad thing: it is highly uncertain how much growth all of this activism is going to sustain. From 2000 through 1Q 2020, there is zero (statistically) relationship between current GDP growth (nominal) and ECB assets accumulation in the same year and in prior year:

Even ignoring statistical significance, the relationship itself is not positive, especially in the lagged data. In other words, there is absolutely no evidence of causality from ECB asset purchases to higher economic growth. While reasons for this results are complex (and not really a matter for this post), there are some serious questions to be asked as to how much tangible growth is being sustained by the Central Bank's activism. On the other side of the same argument, if we assume that the ECB purchases of assets are effective at sustaining growth in the Euro area economy, then we must have some serious questions as to what the Euro area economy is capable of producing in terms of GDP growth without such interventions.

In simple terms: we are damned if we do, and damned if we do not:

  • Either monetary activism is not effective at sustaining growth, or
  • If monetary activism is effective, then the state of the economic institutions overall is so dire, it remains comatose even with extraordinary supports from Frankfurt.

Neither is a pleasant conclusion. And there is not a third alternative.

Just in case you need a reality check on how poor Euro area's growth has been, here is a summary: