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N°28 MARCH 2015 ECONOTE Societe Generale Economic and sectoral studies department EURO ZONE: IN THE GRIP OF ‘SECULAR STAGNATION’? The euro zone economy has weathered six years since the beginning of the Great Recession without even remotely approaching a full recovery, prompting concerns that Europe may face a Japan-style lost decade (now in its 23rd year). Behind the euro zone’s economic downturn is a historically unprecedented collapse in investment. While the economic outlook for 2015 and 2016 is improving, mainly due to lower oil prices, the economy is expected at best to return to its precrisis potential growth rate in the medium term without catch-up to make up for output losses since 2008. The secular stagnation hypothesis is the claim that underlying changes in saving and investment fundamentals may cause a chronic shortfall in aggregate demand by lowering the 'natural' rate of interest - i.e. the interest rate consistent with full employment - below zero. The fall of the natural interest rate into negative territory is, however, viewed as a key obstacle to recovery as it prevents monetary policy from being effective, given the zero lower bound on nominal interest rates. Consequently, the actual real rate of interest remains persistently above the natural rate, causing chronically depressed investment demand that plunges the economy into a low growth equilibrium trap. According to this hypothesis, remedies include higher inflation and fiscal stimulus. While the vast bond-buying program undertaken by the European Central Bank is intended to raise inflation expectations, the Juncker plan aims at boosting public and private investment. Marie-Hélène DUPRAT +33 1 42 14 16 04 [email protected] ECONOTE | N°28 – MARCH 2015 In his November 2013 speech to the IMF Forum, Lawrence Summers argued that the US economy may be suffering from 'secular stagnation' caused by a secular deficiency in aggregate demand1. The term was coined in the late 1930s by the economist Alvin Hansen, who suggested that the Great Depression might herald a new era of persistently depressed economy2. Back then, Hansen pinpointed demographic factors as a major cause of secular stagnation: a declining birth rate, he argued, meant low investment demand that was causing an oversupply of savings. In the years that followed WW2, the secular stagnation hypothesis lost its relevance because of the baby boom which altered the population dynamics and the massive increase in government spending which effectively put an end to concerns about insufficient demand. But the notion of secular stagnation has returned to centre stage in the academic debate, as six years after the Great Recession of 2008-9, growth in many developed economies remains exceptionally low. So could the advanced world fall victim to the same type of economic malaise that has plagued Japan for the last two decades3? For some, the world’s major developed economies are suffering from a fairly conventional recovery, albeit slower than usual, but with normal growth resuming. For others, advanced economies are facing structural changes that are making sluggish growth the norm, rather than a 1 Summers, Lawrence (2013), “IMF Economic Forum: Policy Responses to Crises”, Speech delivered at the IMF Annual Research Conference, November 8. 2 See Hansen, Alvin (1939) "Economic progress and declining population growth", American Economic Review, 29(1): 1-15. 3 The bursting of Japan’s huge bubble in equities and real estate in 1989-91 left behind an overhang of debt on the country’s private sector balance sheets, which set the stage for a dramatic reduction in investment as corporations gradually paid down their debts. This exacerbated the underlying shortfall in consumption, leading to more than a decade of virtually no economic growth (Japan’s so-called 'lost decade'). temporary phenomenon4. While most discussion on whether major advanced economies are facing secular stagnation has so far focused on the US, the American recovery compares favourably to the economic recoveries in almost all other developed nations, especially in Europe. This paper argues that the euro zone may be highly susceptible to risks of secular stagnation. This is mainly because of ongoing private sector deleveraging, combined with a declining working-age population, which acts as a driving force behind a sustained downtrend in aggregate demand that may require, if it is to be countered, a negative real rate of interest. Moreover, and critically, the euro zone appears little equipped to address the secular stagnation challenge, owing to political and institutional considerations. All of this suggests that we cannot exclude for the euro zone a long period of slow growth and higher-than-normal unemployment. CRISIS, POST-CRISIS: NEW ERA IN THE DEVELOPED WORLD AN EXCEPTIONALLY SLOW RECOVERY The Great Recession of 2008-9 was by far the most severe economic downturn experienced by advanced economies since the Great Depression of the 1930s, but the resumption of growth has proven to be the worst since the 1930s. No advanced economy has experienced a V-shaped recovery from the Great Recession, as might have been expected after a downturn of such magnitude. 4 See Summers, Lawrence (2014), “US economic prospects: Secular stagnation, hysteresis, and the zero lower bound”, Business Economics, 49(2): 65-73 National Association for Business Economics; Krugman, Paul (2013), “Secular stagnation, coalmines, bubbles and Larry Summers”, The New York Times blog, November 16; Krugman, Paul (2014), “Three charts on secular stagnation”, The New York Times blog, May 7; Krugman, Paul (2014), “Secular stagnation in the euro area”, The New York Times blog, May 17; Teulings, Coen and Richard Baldwin (2014), “Secular stagnation: Facts, causes, and cures”, Vox eBook, September 10; De Grauwe, Paul (2015), “Secular stagnation in the euro zone”, VoxEU.org, January 30. 2 ECONOTE | N°28 – MARCH 2015 Despite near-zero policy interest rates, unconventional monetary policies and rising public debt, post-financial crisis growth in the major developed economies has been unusually sluggish, falling far short of longer-term growth trends - gross domestic product today remains well below its pre-crisis peak in many advanced economies. This abnormally slow recovery has to be contrasted with the regular recovery phase of the business cycle, in which the economy is typically back to where it started within six months, and catches up to its longer-term trend within a year. Since the global financial crisis, Europe and Japan have consistently fared noticeably worse than the US, with shorter, shallower recoveries followed by more pronounced economic relapses. After plummeting by more than 15% in 2008-09, the Japanese economy contracted again in 2010-11, yet again in 2012, and then once again in the second quarter of 2014 when it shrank by 7.1% in the wake of the sales tax hike. Likewise, the euro zone saw a deep recession in 200809, it then experienced an historically weak 0.5% economic recovery in 2009-10, fell back into recession in the subsequent 18 months driven by the downturn in the peripheral economies, only to grow by a tepid 0.2% in 2013-14. THE GREAT RECESSION IN THE EUROPEAN PERIPHERY The recession which affected the periphery of the European Union is eerily reminiscent of the Great Depression of the 1930s. THE UNITED STATES HAS FARED BETTER After a brief, below-average initial recovery in late 2009, the US economy has experienced three economic relapses (slowing or negative GDP growth): in early 2011, in late 2012, and in the first quarter of 2014 when it dipped into negative territory (-2.9%). In the years 2009-2013, America’s average economic growth rate has been less than 2% a year, that is, about half its historical norm. The US recovery, however, strengthened in the second and third quarters of 2014, when the economy expanded at its fastest pace in more than a decade, with a combined 4.25% annualised pace. The unemployment rate fell to 5.5% in February - its lowest point since 2008. The economic damage inflicted by the recession in the southern European countries (including Ireland) has been so massive and long-lasting, especially on the labour markets, that it has been likened to that experienced by the US during the Great Depression of 3 ECONOTE | N°28 – MARCH 2015 the 1930s5. Unemployment remains today at record highs in these countries, especially among young people (e.g. over 50% in Spain). SUB-PAR GROWTH AS THE 'NEW NORMAL'? By the third quarter of 2014, real gross domestic product was still well below pre-crisis levels in all the peripheral countries. The reasons why the recovery from the global financial crisis has been so exceptionally sluggish remain a source of considerable controversy6. Explanatory theories are many, ranging from declining growth in aggregate supply resulting from a slowing pace of innovation7, to failed economic policies, to debt overhang8, to a permanent shortfall of aggregate demand due to an excess of desired saving over desired investment (the secular stagnation hypothesis). 6 See Lo, Stephanie and Kenneth Rogoff (2014), “Secular stagnation, debt overhang and other rationales for sluggish growth, six years on”, Paper prepared for the 13th Annual BIS Conference, Lucerne, Switzerland, June 27. PERSISTENT OUTPUT LOSSES RELATIVE TO PRECRISIS IN THE EURO ZONE As 2015 begins, the USA may be strengthening its economic footing, but the outlook for the euro zone remains adversely affected by persistent structural weaknesses. The euro zone is set to experience a cyclical recovery in coming quarters, due mainly to the fall in oil prices and the depreciation of the euro, but as long as investment will remain wholly inadequate, a full-blown, self-sustainable recovery will be out of reach. 5 Between 1929 and 1933, US output fell by one-third, while the unemployment rate soared to 25% of the labour force. 7 Gordon (2012), in particular, argues that the growth effect of the invention of the Web, e-commerce and the Internet is likely to prove far lower than that of the two previous industrial revolutions (i.e. steam and railroads from 1750 to 1830, and electricity, internal combustion engine and running water from 1870 to 1900). This is because, he argues, the information and communications technology (IT) system has a lower potential to positively impact productivity than previous technological innovations. He points to weak productivity growth in the recent past in the US, and forecasts that productivity will fade in the foreseeable future, affecting medium-term economic growth. See Gordon, Robert J. (2012), “Is US economic growth over? Faltering innovation confronts the six headwinds”, NBER Working Paper 18315, August. On the same line of reasoning, also see Kasparov, Garry and Peter Thiel (2012), “Our dangerous delusion of tech progress”, Financial Times, November 8. 8 There is growing evidence that high debt exerts substantial drag on recovery and growth. This has long been argued by Reinhart and Rogoff (2009), who find that financial crises that are preceded by a sustained buildup of debt are typically followed by unusually slow recoveries. See Reinhart, Carmen M. and Kenneth S. Rogoff (2009), “This time is different: Eight centuries of financial folly”, Princeton University Press. Reinhart, Carmen M. and Kenneth S. Rogoff (2009), “The aftermath of financial crisis”, The American Economic Review, 99(2): 466-472. The prominent role played by the unwinding of high deleveraging in holding back growth is also emphasised in the economic research on secular stagnation; see Eggertsson, Gauti B. and Neil R. Mehrotra (2014), “A model of secular stagnation”, July 4. Also see Mian, Atif R. and Amir Sufi (2014), "House of debt: How they (and you) caused the Great Recession, and how we can prevent it from happening again", University of Chicago Press. 4 ECONOTE | N°28 – MARCH 2015 The secular stagnation hypothesis is the claim that negative real interest rates are needed to equate saving and investment with full employment. And this has profound implications for capital spending. Admittedly, one of the most troubling aspects of the current recovery has been a persistent shortfall in investment. And this shortfall in investment, in turn, could explain a number of other disturbing observations since the global financial crisis, such as slow economic growth and low interest rates. Adjusted for inflation, interest rates in major advanced countries have been trending down for two to three decades. The prevailing view in academic circles is that this secular drop in real rates reflects, to a large extent, a fall in the equilibrium or 'natural' rate of interest9 - the short-term real interest rate consistent with full employment - caused by underlying changes in savings and investment fundamentals [see IMF (2014)10]. According to proponents of the secular stagnation hypothesis, the natural rate of interest (which cannot be directly observed) fell to a negative level (around -2 to -3%) at some point in the mid-1990s owing to an excess of desired savings over desired investment11. SECULAR DOWNWARD TREND IN REAL INTEREST RATES This prolonged period of sub-par post-crisis growth in the advanced world has taken place despite a fall in interest rates to record low levels. The drop in interest rates actually long preceded the global financial crisis nominal interest rates across the yield curve have been tumbling since the early 1980s. A considerable part of this reflects the downward trend and stabilisation of expected inflation across the advanced world, largely as a result of the increased credibility of the main central banks’ commitment to price stability. 9 Knut Wicksell introduced the concept of the natural rate of interest in his 1898 paper: “The influence of the rate of interest on commodity prices”; he then developed the idea in Geldzins und Guterpreise (1898), which was translated by R.F. Kahn as “Interest and Prices” (1936). London: Macmillan. 10 International Monetary Fund (2014), “Perspectives on global interest rates”, IMF World Economic Outlook, Chapter 3, April. 11 For an estimate of the natural rate of interest see Laubach, Thomas and John C. Williams (2003), “Measuring the natural rate of interest”, Review of Economics and Statistics 85(4): 1063-1070. 5 ECONOTE | N°28 – MARCH 2015 BOX 1. WICKSELL’S NATURAL RATE OF INTEREST In Wicksellian-type theory (named for Knut Wicksell), there exist two different concepts of the rate of interest at the same time: (1) the observed interest rate in the market place (the interest rate on bonds), which is determined by monetary factors, and (2) the ‘natural’ rate of interest (the rate of return on capital), which is determined by non-monetary factors, such as productivity growth, population growth and household time preferences. Economic theory suggests that the natural rate of interest varies over time in response to shifts in technology and preferences. For example, a decline in the trend growth rate of potential GDP leads to a lower natural rate of interest, and so does a rise in risk aversion, which puts upward pressure on precautionary savings. The natural rate of interest is not observed directly but, so to speak, exerts influence from behind the scenes. Of course, there are many challenges in defining and measuring it. But since the seminal work of Wicksell (1898) it has occupied a central place in both academic and policy making circles. The natural rate of interest is a guide to a central bank for setting its policy interest rate target. In Wicksell’s theory, price stability is achieved only when the natural rate of interest and the market rate of interest are equal. When the natural rate is above the market rate of interest, capital accumulation grows and so does inflation; conversely, when the natural rate falls below the market rate, the rate of growth of capital accumulation declines and deflation unfolds. Thus, the purpose of monetary policy is to bring the observed market rate to its natural rate. The natural rate concept was taken up by Keynes in his A Treatise on Money (1930) to show that the market rate of interest rate can remain too high to reach full employment for long periods of time. The most common explanation for the alleged fall in the natural rate of interest is an increase in global saving, mostly attributable to high-saving emerging economies, such as China or oil-producing economies (the so-called 'global savings glut' hypothesis12). It is argued that because of investors’ growing preference for safe assets, partly due to a rising desire on the part of central banks to accumulate reserves, these extra savings have mainly been channelled into government bonds, which has driven up demand for Treasuries and pushed down debt rates [see IMF (2014)]. But the decline in real rates could also be attributable to depressed investment demand caused, for instance, by slower growth in the labour force and productivity, or by demographic shifts, particularly a decline in the working population relative to the non-working population. Another explanation for the post-crisis sharp drop in real interest rates points to the damage done by the Great Recession to the economies’ labour force and productivity, which would lead to a slowdown in the growth of economic potential (an effect called hysteresis13). There is mounting evidence that deep recessions have a lasting negative effect on potential output14. And lower potential growth, in turn, means a lower return on capital which reduces the natural rate of interest. 13 Blanchard, Olivier, and Lawrence H. Summers (1986), “Hysteresis and the European unemployment problem”, NBER Macroeconomics Annual 198. See also Haltmaier, Jane (2012), “Do recessions affect potential output?”, International Finance Discussion Paper 1066, Federal Reserve Board, December. 14 12 See Bernanke, Ben (2005), “The global saving glut and the U.S. current account deficit”, Sandridge Lecture, Virginia Association of Economists, Richmond, Virginia, March 10. Potential output is the level of output that an economy can produce at a constant inflation rate. It depends on the capital stock, the potential labour force (which depends on demographic factors and the participation rates), the non-accelerating inflation rate of unemployment (NAIRU), and the level of labour efficiency. 6 ECONOTE | N°28 – MARCH 2015 The jury is still out on the ultimate drivers of the longterm drop in real interest rates, but the debate serves to highlight that there are good reasons to expect that the natural rate of interest may have fallen to very low levels in the advanced world in recent decades. MONETARY POLICY AT THE ZERO LOWER BOUND Another factor behind the fall in interest rates to remarkably low levels in the aftermath of the global financial crisis has been the central banks’ policy reaction to the crisis. In response to the Great Recession which followed the global financial crisis, central banks around the world have slashed their policy rates to zero or close to zero. Once the zero lower bound on nominal interest rate was hit15, major central banks then started adopting unconventional monetary policy in an effort to reduce term premia and long-term rates. These heterodox monetary policies have included quantitative easing (QE) programmes (through purchases of government securities and private assets) to boost the monetary base, forward guidance on the future path of the policy rate, and programmes to directly support bank lending. The problem is that in a world in which the natural rate of interest has fallen below zero, the central banks constrained by the zero lower bound on nominal interest rates find themselves in a situation in which they are unable to move their policy rates low enough to generate adequate demand, leaving the economy exposed to a prolonged economic slump. THE SECULAR STAGNATION HYPOTHESIS Increasingly, observers point out that the current economic malaise in the advanced world has many of the same symptoms as the US Great Depression of the 1930s and Japan’s lost decade, including persistent 15 Nominal policy interest rates have a 'zero lower bound' as, except for tiny technical deviations, they cannot fall below zero. The reason for this is, of course, that nobody would lend at a negative nominal interest rate rather than hold the currency. The idea that monetary policy is ineffective under zero-interest conditions is known as the 'liquidity trap' that Keynes emphasised in his "General Theory". See Keynes, John Maynard (1936), “The general theory of employment, interest, and money”, London: Macmillan. subpar growth, declining population growth, and a nominal interest rate at zero. The secular stagnation hypothesis is the claim that underlying changes in economic fundamentals, such as slowing growth in the working-age population, can explain long-lasting shortfalls of demand by permanently lowering the natural rate of interest below zero. The fall of the natural interest rate into negative territory is, however, a major obstacle to recovery as it prevents monetary policy from being effective in providing the appropriate stimulus, given the zero lower bound on nominal interest rates. Put another way, the fall of the natural rate below zero makes liquidity trap episodes more frequent16. Indeed the past five years bear testimony to the fact that the zero lower bound can be a binding constraint in many advanced economies. Although policy rates are at zero, the actual real rate of interest remains too high or, put differently, the actual rate remains persistently above the natural rate. This could explain the prolonged period of underinvestment that advanced economies have been facing since the onset of the global financial crisis, which in turn could explain long-lasting 'output gaps'17 in these economies, along with lower potential growth. Surprisingly, the idea of secular stagnation has hardly been developed in economic research on the liquidity trap. One notable exception, however, is the recent work by Eggertsson and Mehrotra (2014)18. These authors show that a variety of forces can generate a negative natural rate of interest, including a slowdown in population growth, a tightening of borrowing limits and, under some conditions, income inequality19. In this setting, absent a higher inflation target, the zero lower bound on nominal interest rates will bind, and a persistent recession can take hold. As Eggertsson and Mehrotra point out, many of the advanced economies that have been suffering from subpar growth over the 16 See Krugman, Paul (2013), “Bubbles, regulation, and secular stagnation”, The New York Times blog, September 25; Krugman, Paul (2014), “Do we face secular stagnation?”, Speech delivered at a panel event in Oxford organised jointly by the Sanjaya Lall Memorial Trust, Green Templeton College, and the Department of Economics at the University of Oxford, May 14. On the liquidity trap, see also Krugman, Paul (1998), “It’s baaack: Japan’s slump and the return of the liquidity trap”, Brookings Papers on Economic Activity, 29 (1998-2): 137-206; Eggertsson, Gauti B. and Michael Woodford (2003), “The zero bound on interest rates and optimal monetary policy”, Brookings Papers on Economic Activity, 1: 139-233; Bernanke, Ben S., Vincent R. Reinhart, and Brian P. Sack (2004), “Monetary policy alternatives at the zero bound: An empirical assessment”, FEDS Working Paper, September. 17 The 'output gap' is a measure of the difference between the actual output of an economy and its potential output (the maximum amount of goods and services an economy can turn out when it is most efficient - that is, at full capacity). 18 Eggertsson, Gauti B. and Neil R. Mehrotra (2014), “A model of secular stagnation”, mimeo, Brown University, July 4. (op.cit. note 8). 19 An increase in income inequality redistributes income from those with less wealth to those with more, and as the latter have an increased propensity to save, this will raise the level of savings in the economy, driving the natural rate of interest lower. 7 ECONOTE | N°28 – MARCH 2015 past five years have also experienced a slowdown in population growth, a tightening of borrowing constraints, and an increase in inequality. The secular stagnation hypothesis is a demand-side, not a supply-side framework20. In this framework, there is no self-correcting force back to full employment and, unless offsetting policies are implemented, economies are stuck in a low output trap. As the Japanese have discovered, an economy caught in a liquidity trap does not automatically return to a potential growth path. The Taylor rule21 would suggest negative policy rates for most of Europe but the problem, of course, is that central banks are unable to drop nominal interest rates below zero. Against this backdrop, the market has been pricing in many years of stagnant economies with very low inflation, as reflected in record low core government bond yields. THE CRISIS IN INVESTMENT IN THE EURO ZONE STUCK IN A LOW-GROWTH EQUILIBRIUM? The euro zone economy has weathered six years since the beginning of the Great Recession without remotely approaching a full recovery, prompting concerns that Europe may face a Japan-style lost decade (now in its 23rd year). Despite essentially zero short-term nominal interest rates, spending remains well below what the economy can produce, leaving a large output gap which keeps pulling inflation down. So the expected inflation which would be necessary to bring down real interest rates has not been forthcoming. To boost flagging growth and ward off deflation, the European Central Bank (ECB), on January 22, committed to embark on a QE programme worth at least €1.140bn, which will run from March 2015 to at least September 2016. The ECB president pledged to buy €60bn-worth of private and public sector bonds per month until inflation returns to near its 2% target. 21 20 See Krugman, Paul (2014), “What secular stagnation isn’t”, The New York Times blog, October 27. The Taylor rule (named after John B. Taylor who was the first to describe these mechanisms) relates the nominal policy interest rate to, (1) the gap between actual inflation and the inflation target, (2) the output gap, and (3) the purely random residual from the equation (called 'economic policy shock'). 8 ECONOTE | N°28 – MARCH 2015 recorded since the global financial crisis has had a huge impact on short-term economic growth through its effect on aggregate demand, but it also has major consequences for longer-term growth potential because of its adverse effect on capital stock and thus on productivity growth. Behind the euro zone’s economic downturn is a historically unprecedented collapse in investment. The global financial crisis set the stage for a 15% drop in capital investment volumes - a loss that is twice as large as that seen in the USA and in Japan. The Berlinbased German Institute for Economic Research calculates that the euro zone’s investment gap is equivalent to 2% of GDP (that is, about €200bn annually) with the shortfall being particularly large in the peripheral countries and the biggest gap being found in Ireland22. But, to different degrees, the fall in investment has affected nearly all euro zone countries and most of their sectors. There are several reasons behind the collapse in investment in the euro zone including: - - - - In 2013, six years after the beginning of the crisis, private investment volumes in the euro zone was almost one-fifth below pre-crisis levels. Admittedly, 2007 may not be the best benchmark to use for desirable investment levels today, as that was the year of the peak of the credit bubble which caused a lot of misplaced investment. But while using 1995-2007 as the sample period, we still find that there exists a large investment gap in the euro zone. Indeed, in 2013, the investment share in GDP of the European Union as a whole was 2 percentage points below its average for the 1995-2007 period. The marked fall in investment the end of large capital inflows to peripheral Europe in 2008 that implied a return of investment to the level of the pre-boom years; the correction that followed the bursting of the credit and real estate bubbles which had developed in the 2000s in some peripheral countries, leading to a lot of wasteful investment; weak growth (or expectations of growth) via the traditional accelerator effect23; financial fragmentation, which has resulted in elevated financing costs in peripheral Europe, especially for SMEs24; heightened political uncertainty25; cuts in public capital spending in the context of fiscal consolidation programmes since 2010. Some of these factors are structural in nature and are thus here to stay for the long-term. Specifically, there are two trends of particular importance which are 23 See Chirinko, R. (1993), “Business fixed investment spending: Modeling strategies, empirical results, and policy implications”, Journal of Economic Literature, 31(4): 1875-1911. 24 Financial fragmentation has been reduced since its peak in 2012 after Mario Draghi pledged that he will do “whatever it takes” to save the euro, and is expected to ease further as the building blocks of the Banking Union (most notably common bank supervision and resolution rules) are put in place. Financial fragmentation, however, will not end, given the differences in the creditworthiness of the various euro zone countries, as reflected in various credit premia. 25 22 See Baldi, G., et al. (2014), “Weak investment dampens Europe’s growth”, DIW Economic Bulletin (2014), DIW Berlin, German Institute for Economic Research, 4(7): 8-21, July. See also IMF (2014), “Investment in the euro area, why has it been weak?”, IMF Country Report No 14/199. As emphasised by Mian, Sufi and Trebbi (2012), financial crises are typically followed by heightened political polarisation which often leads to policy paralysis that can hold back investment and growth. See Mian, Atif R., Amir Sufi and Francesco Trebbi (2012), “Resolving debt overhang: Political constraints in the aftermath of financial crises”, NBER Working Paper, no 17831. 9 ECONOTE | N°28 – MARCH 2015 bound to shape investment prospects in the euro zone for the foreseeable future, namely: 1) 2) the falling rate of growth in the working-age population; the multi-year, possibly multi-decade process of private sector deleveraging following the sudden stop of capital flows into peripheral Europe. Both of these trends will have long-lasting drag effects on investment demand in the euro zone which will cast a long shadow over growth in these economies. SHRINKING WORKING-AGE POPULATION Just like Japan, many euro zone countries are plagued by a stagnant or shrinking working-age population (aged 15 to 64 years). In Japan, the working-age population started to shrink in 1997, leading to a fall in the proportion of the active population in the total population26. In the European Union, working-age populations began to decline in the years between 2009 and 2012. So Europe is now about where Japan was in the late 1990s. In 2012, people considered to be of working age accounted for 66.5 % of the EU-28’s population, a percentage which is set to decline steadily over the next 50 years, thanks mainly to an ageing population. TIGHTENED BORROWING CONSTRAINTS Again, just like Japan in the aftermath of the bursting of its asset price bubble in 1989-91, much of the euro zone has been forced to undergo a broad private sector deleveraging process after the bursting of its big capital-flow bubble in 2008. Deleveraging, however, is always a lengthy and protracted process that takes years, if not decades28. 26 Prior to the 2008 crisis, large private capital inflows to European peripheral countries fuelled a decade-long domestic demand boom in those countries, along with large private asset bubbles in some of them (Ireland, Spain), which left a legacy of large private debt overhang (mortgage debt in Ireland and Spain, corporate debt in Portugal and again in Spain). The boom ended with the financial panic that gripped capital markets worldwide after the collapse of Lehman Brothers. The private capital flows to the periphery came to a sudden halt and then reversed, triggering the unwinding of the large macroeconomic imbalances which had accumulated in the euro zone prior to the crisis. Following the sudden stop in private capital inflows in 2007-8, the overstretched European private 27 Slowing working-age population also creates supply-side constraints on growth. Specifically, a shrinking workforce leads to excessive capital stock, hence a reduced return on capital, which leads corporations to reduce capital investment. 28 The European Commission (2014) reckons that corporations and households in peripheral countries may need to cut their debt-to-GDP ratios by at least 30 percentage points, which will act as a major drag on investment over the medium-term. See European Commission (2014), “Private sector deleveraging: Where do we stand?”, Quarterly Report on the Euro Area, 13(3), October. A shrinking labour force, however, means a slowergrowth economy and, thanks to the accelerator effect, a decline in investment demand. Less investment is indeed required to increase capacity to meet demand, since a falling labour force means lower demand for new houses, new office buildings, new materials to equip workers, etc.27. Japan has the world’s oldest population, with a median age of 46 years. Many researchers argue that demographic shifts have been a driving force underlying Japan’s lost decade. For a discussion of this literature, see Shirakawa, Masaaki (2012), “Demographic changes and macroeconomic performance: Japanese experiences”, BOJ-IMES conference, mimeo. 10 ECONOTE | N°28 – MARCH 2015 sector (households, businesses and banks) was left with no choice but to deleverage and rebuild savings. Flow of funds data for the euro zone show a large shift away from borrowing to saving by the corporate sector following the outbreak of the global financial crisis in 2007-8. The euro zone’s corporate sector went from a net borrower of funds to the tune of 11.8% of GDP in Q3 2008, to a net saver of funds to the tune of 3.4% of GDP in Q3 2014. Over the same period, the household sector raised savings from around 7.9% of GDP to 12.5% of GDP. This means that, between Q3 2008 and Q3 2014, the euro zone’s economy lost private sector demand (household and corporate combined) equivalent to 19.8% of GDP. This represents a major contractionary blow to the economy. The increase in private sector savings observed in the euro zone since the global financial crisis has been driven by substantial deleveraging in Spain and Ireland. But the private sector in Germany has also noticeably not been borrowing; instead it (both households and corporate) has actually been deleveraging since the early 2000s. Since its peak in 2001, the private sector debt-to-GDP ratio in Germany has fallen by about 22%. So, today, private sectors in most of Europe (including in Germany) are all increasing savings or paying down debt and the sole remaining borrower is the public sector. Flow of funds data for the euro zone also show that the increase in private savings has exceeded public dissavings (that is, public borrowing), which indicates that for the euro zone as a whole, governments - which are also facing too much debt (partly because of the private debt that they had been forced to take over) have not borrowed and spent money sufficiently to keep the economy going in the face of the large private sector deleveraging shock. This has been especially pronounced in the aftermath of Europe’s sovereign debt crisis in 2010, which prompted the imposition of severe austerity packages in peripheral countries, along with budgetary restrictions in all the others. Capital spending has been the main target for fiscal consolidation in most of Europe, as reflected in a strong decline in public investment since 2010, with cuts reaching 60% in some euro zone countries. In 2013, public investment in the euro zone amounted to 2.1% of GDP, to be compared to 2.7% of GDP at its 2009 peak. Germany, which can now borrow money almost for free, had a public investment ratio of only 1.4% of GDP in 2013, that is, one of the lowest ratios in the euro zone. 11 ECONOTE | N°28 – MARCH 2015 lenders either, given the high credit risk of borrowers (in particular SMEs), and as banks need to fix their own balance sheet as well – hence, banks’ preference for safe assets, such as government bonds. Balance sheet recession When households, businesses and banks are all deleveraging at the same time, the impact on the investment rate and the macro-economy is severe [see notably Cuerpo et al. (2013)]29. The economy then falls into a form of recession which is often described as 'balance sheet recession', a term coined by the economist Richard Koo [see Koo (2008, 2011, 2013)]30. A balance sheet recession occurs after the bursting of a credit bubble, which leaves an overhang of debt on the private sector balance sheets. These recessions are usually deeper than a business cycle downturn, while recoveries are typically muted and take a long time. This is because the key priority for the private sector is balance sheet repair, so that it becomes more concerned with rebuilding savings and eliminating debt than with expanding investment. In this type of recession, even a zero interest rate is not enough to stimulate borrowing and spending, hence monetary policy loses its effectiveness. There are not many The most notable examples of balance sheet recessions are the Great Depression in the United States in the 1930s and Japan's lost decade in the 1990s. As Koo (2011) emphasised, Japan skirted a 1930s-style depression only because of the government’s borrowing and spending which compensated for the drop in private spending. Although Japanese fiscal policy was barely expansionary in the 1990s, the authorities managed to keep GDP above the bubble peak throughout the postbubble period, ensuring that mass unemployment didn’t become an issue in Japan. If, however, both the private and the public sectors try to deleverage at the same time, the economy is set to fall into a protracted recession. Since the 2008 financial crisis, Spain, Ireland and Portugal have all been in severe balance sheet recessions with considerable fallouts on investment. Italy has also seen an especially sharp drop in capital spending. In fact, all euro zone countries, to varying degrees, have experienced investment shortfalls, with the effects of the large drop in private investment being compounded by cuts in public investment since 2010. 29 Cuerpo, C., et al. (2013), “Indebtedness, deleveraging dynamics and macroeconomic adjustment”, European Economy Economic European Commission, Papers 477. 30 Koo, Richard (2008), “The Holy Grail of macroeconomics: Lessons from Japan’s Great Recession”, John Wiley; Koo, Richard C. (2011), “The world in balance sheet recession: Causes, cure, and politics”, Real-World Economics Reviews, Issue no 58, Nomura Research Institute, Tokyo; Koo, Richard C. (2013), “Balance sheet recession as the other-half of macroeconomics”, European Journal of Economics and Economic Policies: Intervention, 10(2): 136-157. 12 ECONOTE | N°28 – MARCH 2015 In a balance sheet recession, the absence of borrowing and spending from private economic agents means that the economy is continuously losing aggregate demand by an amount equivalent to the sum of savings and net debt repayments31. When an economy falls into this type of recession, it does not enter self-sustaining growth until private economic agents have finished repairing their balance sheets. It is critically important that such a situation does not turn into a deflationary spiral because, as Irving Fisher already pointed out in 1933, falling prices in a highly leveraged economy can set off a highly destabilising process. Deflation, Fisher (1933) emphasised, worsens the balance sheets of debtors by increasing the real burden of their debt, which generally prompts them to cut their spending, leading in turn to further falls in prices causing a worsening of debt ratios leading to even more spending cuts - a vicious circle that can turn into a Great Depression32. This perverse loop of debt and deflation - which is also at work with very low levels of inflation [see IMF (2014)]33 - is a key reason behind Europe’s difficulties in reducing its debt overhang. Fisherian debt deflation mechanisms have been at work in the euro zone’s periphery, contributing to prolonging the time to recovery. AN ENDURING LACK OF AGGREGATE DEMAND The spectre of debt-deflation Although since 2008, substantial balance sheet adjustment has taken place in the euro zone through rises in gross savings and/or falls in gross investment, the private-sector debt burden has barely fallen from its pre-crisis peak. The non-financial private sector in Spain, Ireland and Portugal is still today over 200% of GDP (over 300% in Ireland), and corporate debt overhang in Italy remains stubbornly high. Yet if the euro zone’s recovery is to strengthen, this burden of private debt must be scaled down. But to varying degrees in different countries, the private sector’s deleveraging efforts have been impeded by the combination of economic contraction and low inflation that has characterised the post-2008 crisis period. At the end of 2014, inflation in the euro zone fell into negative territory mainly because of the fall in energy prices (inflation excluding energy and food remained slightly positive). So, since the outbreak of the global financial crisis, the euro zone has been in the grip of a broad private sector deleveraging dynamic, which has subtracted a major source of aggregate demand. Admittedly, the severe tightening of borrowing limits triggered by the global financial crisis, coupled with Europe’s declining working-age population, implies changes in both saving and investment behaviour that have implications for the level of real interest rates. Along these lines, there is a case to be made that the euro zone may now find itself in a situation in which the natural rate of interest has become negative, owing to an excess of desired savings over desired investment. In total, there appears to be evidence that there is a substantial shortfall in aggregate demand in the euro zone, in part driven by factors emphasised by the secular stagnation hypothesis. Of course, this does not prove that the secular stagnation hypothesis in the euro zone is correct, because other factors can be at play. But if this hypothesis is correct, we should expect 32 Fisher, Irving (1933), “The debt-deflation theory of Great Depressions”, Econometrica, 1(4). 33 31 See Koo, Richard C. (2011), (op. cit. note 30). See Moghadam, Reza, Ranjit Teja and Pelin Berkmen (2014), “Euro area – 'Deflation' versus 'Lowflation'", IMF Direct, March 4. 13 ECONOTE | N°28 – MARCH 2015 that GDP under-performance will last for a very long time. This does not imply though, that the euro zone will never have growth, as now and then the economy will expand, but growth will never be strong enough to bring the economy back to full employment. Unlike what happens in conventional economic models, the problem of the excess of desired savings cannot solve itself through falling interest rates, because the zero lower bound on interest rates prevents nominal interest rates from falling below zero. As forces that normally tend to restore the usual or normal equilibrium do not apply at the zero lower bound, the economy remains stuck in a low-level equilibrium trap. THE RULES OF ECONOMICS CHANGE WHEN POLICY INTEREST RATES HIT THE ZERO LOWER BOUND THE PARADOX OF THRIFT Once nominal interest rates hit the zero lower bound, the economy enters a world in which, as Krugman likes to put it: “virtue is vice and prudence is folly”34. This is the paradox of thrift popularised by Keynes. This paradox35 states that if everyone tries to increase saving simultaneously, then aggregate demand will fall, which will depress the economy leading eventually to a flattening or diminishing of the total savings rate because of lower output. Lower output, in turn, makes it harder to reduce debt burdens. So, although individual savings can be beneficial for the individuals who save more, collective saving behaviour can have harmful effects on the economy. Note that a fall in prices, which raises the real interest rate, only makes matters worse. While none of the spontaneous forces for restoring fullemployment equilibrium apply under circumstances of secular stagnation, there is scope for policy intervention in order to help the economy gain traction. Two types of policy intervention can be envisaged. The first one is a commitment to generate expectations of inflation in order to reduce real interest rates. The second one is expansionary fiscal policy designed to boost demand and reduce saving. Of note, as remedies to address secular stagnation lie in ‘unconventional’ policy measures which, in addition, need to be implemented in an aggressive fashion to stand a chance of being effective, there is a high risk that policymakers get into what Krugman calls the ‘timidity trap’, that is, policymakers will remain far too timid in unwinding the ‘extraordinary’ policy measures that a situation of secular stagnation calls for36. THE CHALLENGE OF BRINGING DOWN REAL RATES OF INTEREST The secular stagnation analysis suggests that if full employment is to be restored in the years ahead, real interest rates will have to decline further. This is, however, impossible in an environment of falling prices, where interest rates are constrained by the zero lower bound. The only way to bring down real interest rates when the zero bound on nominal interest rates binds is to generate a rise in the expected rate of inflation. In order to achieve this, the central bank can raise its inflation target and commit to future policy in a way that lifts current inflation expectations [see, notably, Krugman (1998)37]. The vast bond-buying program undertaken by the ECB is intended to raise inflation expectations. But success is not guaranteed, and this policy is not without its downsides. Success is not guaranteed, as central banks, which have in the past built a reputation for consistent lowinflation policy, may find it difficult to convince the public that they now want sustained higher inflation (a policy which has traditionally been regarded as irresponsible). Eggertsson and Mehrotra (2014) show that monetary policy can help boost the economy in a period of secular stagnation only if the central bank credibly commits to a higher inflation target38. But, as emphasised by Summers (2013), this strategy is not without its downsides, as lower real rates of interest push investors to look for riskier assets with higher yields, thereby raising the risk of bubbles, which in turn may have detrimental effects on output. 34 See, for example, Krugman, Paul (2013), “Secular stagnation, coalmines, bubbles, and Larry Summers”, (op.cit. note 4). To cite Krugman: “in a liquidity trap saving may be a personal virtue, but it’s a social vice”. 35 This is a 'paradox' because of a moralistic perception of saving as a virtue. As Samuelson (1958) put it: “[…] in kindergarten we are all taught that thrift is always a good thing”. See Samuelson, Paul A.(1958). "Economics". 4th ed. New York: McGraw-Hill, p. 237. 36 See Krugman, Paul (2014), “The timidity trap”, The New York Times blog, March 20. 37 Krugman, Paui (1998), “It’s baaack: Japan’s slump and the return of the liquidity trap”, (op.cit. note 16). 38 See Eggertsson, Gauti B. and Neil R. Mehrotra (2014), “A model of secular stagnation” (op.cit. note 8). 14 ECONOTE | N°28 – MARCH 2015 THE CHALLENGE OF PROVIDING FISCAL STIMULUS The alternative policy approach to address secular stagnation is to have the government absorb ample private saving through deficit-financed public spending, for instance by investing in infrastructure and education. For Summers (2013), increased public investment in infrastructure, education, or research and development is the first-best strategy to address secular stagnation39. Eggertsson and Mehrotra (2014) also find that fiscal policy is particularly effective in an era of secular stagnation, though admittedly, the empirical evidence on magnitudes is limited. Likewise, the analysis that builds on literature on policy at the zero bound on nominal interest rates generally finds that the optimal policy intervention is expansionary fiscal policy, which provides some positive aggregate demand shock from the government40. In the same vein, research by Summers and DeLong (2012) shows that under depressed conditions, increasing public spending might actually reduce, rather than increase the fiscal deficit, owing to a higher-than-usual fiscal 'multiplier'41. The IMF also finds that, under current depressed conditions in advanced economies, the fiscal multiplier is significantly larger than previously thought42. As to the exact form of the fiscal stimulus, Eggertsson (2010)43 shows that with interest rates at zero it will be most effective via a temporary increase in government spending and some forms of tax cuts, such as a reduction in sales taxes and investment tax credits. This author emphasises, however, that this only holds for a temporary fiscal stimulus, as an increase in public spending that is expected to be permanent could turn out to have contractionary effects. Along these latter lines, Nickel and Tudyka (2013)44 show that when 39 See Summers, Lawrence H. (2013), IMF Fourteenth Annual Research Conference in Honor of Stanley Fisher, Washington DC, November 8 (op.cit. note 1). 40 See Eggertsson, Gauti B. and Paul Krugman (2012), “Debt, deleveraging, and the liquidity trap: A Fisher-Minsky-Koo approach”, Quarterly Journal of Economics, 127(3): 1469-1513, August. For further discussion and references, see Eggertsson, Gauti B. (2010), “What fiscal policy is effective at zero interest rates?”, NBER Macroeconomic Annual, 25(1): 59-112; Delong, J. Bradford and Lawrence H. Summers (2012), “Fiscal policy in a depressed economy”, Brookings Papers on Economic Activity, Spring; and Koo, Richard C. (2013), “Balance sheet recession as the other-half of macroeconomics”, (op.cit. note 30). 41 The fiscal multiplier is the percentage change in GDP on a 1% change in government spending or taxes. It is difficult to determine the size of the fiscal multiplier which, moreover, varies both across countries and time. 42 See Baum, Anja, Poplawski-Ribeiro, Marcos, and Anke Weber (2012), “Fiscal multipliers and the state of the economy”, IMF Working Paper, WP/12/286, December. See also Blanchard, Olivier and Daniel Leigh (2013), “Growth forecast errors and fiscal multipliers”, IMF Working Paper, WP/13/1, January. 43 Eggertsson, Gauti B. (2010), “What fiscal policy is effective at zero interest rates?” (op.cit. note 39). 44 Nickel, Christiane and Andreas Tudyka (2013), “Fiscal stimulus in times of high debt: Reconsidering multipliers and twin deficits”, ECB Working Paper No 1513. public debt is high, the overall effect on real GDP of an expansionary fiscal policy can turn negative, as the crowding-out of private investment increases significantly. Although there is no consensus among economists about optimal fiscal policy, there is general agreement that fiscal stimuli are particularly effective if there are idle resources in the economy (involuntary unemployment and excess capacity) and if nominal interest rates do not rise to such an extent that the expansionary effect of the fiscal stimulus is annihilated by the crowding-out of private investment45. In the euro zone as a whole there are currently plenty of idle resources, core governments face historically low longterm interest rates, and the situation of ample supply of private savings virtually excludes the risk that increased public sector borrowing crowds out private sector credit demand or generates an overheating of the economy. This explains why calls for coordinated fiscal action in the euro zone have stepped up. THE EURO ZONE IS NOT WELL EQUIPPED TO MANAGE THE CHALLENGE Yet the provision of coordinated fiscal stimulus in the 19-member euro zone is far more complex than in a normal country, for at least two reasons. The first reason is that unlike monetary policy, the responsibility for fiscal policy remains in the hands of each national member government. Fiscal policy coordination within the currency union is essentially restricted to a common set of fiscal rules (including, most notably, the Stability and Growth Pact (SGP) and the 'six-pack'). There is no supranational fiscal authority similar to the ECB with regard to monetary policy, which means that there is no euro zone fiscal capacity in the form of its own budget. The second reason is that the size and severity of challenges in each country is different, hence, national member governments may have different policy capacity and objectives. At present, 45 Fiscal policy, however, can fail to stimulate aggregate demand if there is Ricardian equivalence, so that tax cuts financed by new issues of government debt have no effect on private consumption (debt being just deferred taxes). It may also be the case that the government cannot borrow because of poor creditworthiness. 15 ECONOTE | N°28 – MARCH 2015 several euro zone governments lack fiscal space to initiate stimulus, due to their excessively high public debt burden. However, some key countries in the euro zone have the fiscal capacity to undertake an expansionary policy. Germany, for example, now has a cyclically adjusted budget surplus of 1.7% of GDP. Its net public debt is about 40% of GDP, and the country is running a current account surplus of around 7% of GDP, meaning that it saves much more than it invests. If the German government, which can now borrow money virtually for free, were to take steps to use its existing fiscal capacity to expand government spending, this would make a material contribution to addressing the shortfall in aggregate demand that now plagues the euro zone economy46. Another approach is to boost investment at the European level, which is the aim of the Juncker plan that was unveiled on November 25, 2014 (see Box 2). overriding concerns about a loss of confidence in government solvency, notwithstanding the fact that solvency is not a problem for a number of European countries, such as Germany, and that the risk that investors would lose confidence in sovereign debt has receded considerably since the ECB introduced mechanisms to intervene in the government bond market. At this point, the debate takes up one of the oldest questions in macroeconomics, that is, the issue of the balance of risks. On the one hand, there is the risk that Europe may fall victim to a full-blown crisis of confidence over its debt; on the other, there is the danger for Europe of falling into a protracted stagnation and a debt deflation spiral. WHERE DO POLICY MAKERS WANT TO TAKE RISKS? But the fact remains that calls for increased public investment have not secured widespread agreement in European policy-making circles. This is, of course, because as in everything, there is a counter case. At present, European policy remains dominated by 46 Simulation analyses made by the IMF (2013) suggest, however, that fiscal stimulus in Germany is likely to have a relatively small impact on the rest of the euro zone, either because of weak trade links (Greece, Portugal) or due to the large size of the countries (Italy, Spain). See IMF (2013), “Germany Article IV Consultation”, August. 16 ECONOTE | N°28 – MARCH 2015 BOX 2. THE JUNCKER’S INVESTMENT PLAN AND THE MULTIPLER EFFECT On November 25, the European Commission unveiled the mechanism for its plan to support investment projects totalling at least €315bn over the next three years. It is, on the surface, an ambitious plan to address the drastic lack of investment in EU countries. The idea of the Juncker plan is that €21 billion of initial public money will be leveraged to attract private investment worth 15 times the original amount. The Commission hopes that guarantees and seed money will encourage private finance into strategic investments in a range of infrastructure projects across the EU, from transport to energy to internet broadband. The Juncker plan provides for the creation of a new European Fund for Strategic Investments (EFSI), which will rely on €16bn of funding in the form of guarantees drawn from the EU’s budget (of which, €8bn will come from existing unused EU funds) and €5bn of equity funding from the European Investment Bank (EIB). The resulting EFSI totalling €21bn is set to be operational in June 2015. Individual member states will be able to provide additional capital to the Fund, and their contribution will not be taken into account for the Stability and Growth Pact assessment. The plan also provides for the establishment of 'a project pipeline' of proposals for investors, backed by a technical assistance programme to channel investments where they are most needed. The EFSI will serve as credit protection for new, potentially risky projects. These guarantees will allow the EIB to provide €63bn financing (multiplier of 1:3) in the form of subordinated debt. This safety buffer is then expected to catalyse private investment in the senior tranches of the same projects, with a multiplier effect of 1:5. Under this mechanism, the Fund could thus eventually yield €315bn of additional finance (multiplier of 1:15), of which €240bn would be directed to strategic investments and €75bn to SMEs and midcap companies. The €315bn plan would amount to 2.4% of the EU’s GDP over the next three years which, even if it were to materialise, would make a small dent in the massive investment challenge facing Europe. The main question, however, is how such a narrowly financed scheme can generate an increment to private investment of the scale being targeted. While a leverage ratio of 15 to 1 seems overly optimistic, the focus on investment is a welcome step in the right direction. 17 ECONOTE | N°28 – MARCH 2015 18 ECONOTE | N°28 – MARCH 2015 PREVIOUS ISSUES ECONOTE N°27 Emerging oil producing countries: Which are the most vulnerable to the decline in oil prices? Régis GALLAND (February 2015) N°26 Germany: Not a “bazaar” but a factory! Benoît HEITZ (January 2015) N°25 Eurozone: is the crisis over? Marie-Hélène DUPRAT (September 2014) N°24 Eurozone: corporate financing via market: an uneven development within the eurozone Clémentine GALLÈS, Antoine VALLAS (May 2014) N°23 Ireland: The aid plan is ending - Now what? Benoît HEITZ (January 2014) N°22 The euro zone: Falling into a liquidity trap? Marie-Hélène DUPRAT (November 2013) N°21 Rising public debt in Japan: how far is too far? Audrey GASTEUIL (November 2013) N°20 Netherlands: at the periphery of core countries Benoît HEITZ (September 2013) N°19 US: Becoming a LNG exporter Marc-Antoine COLLARD (June 2013) N°18 France: Why has the current account balance deteriorated for more than 20 years? Benoît HEITZ (June 2013) N°17 US energy independence Marc-Antoine COLLARD (May 2013) N°16 Developed countries: who holds public debt? Audrey GASTEUIL-ROUGIER (April 2013) N°15 China: The growth debate Olivier DE BOYSSON, Sopanha SA (April 2013) N°14 China: Housing Property Prices: failing to see the forest for the trees Sopanha SA (April 2013) N°13 Financing governments debt: a vehicle for the (dis)integration of the Eurozone? Léa DAUPHAS, Clémentine GALLÈS (February 2013) N°12 Germany’s export performance: comparative analysis with its European peers Marc FRISO (December 2012) N°11 The Eurozone: a unique crisis Marie-Hélène DUPRAT (September 2012) N°10 Housing market and macroprudential policies: is Canada a success story? Marc-Antoine COLLARD (August 2012) N°9 UK Quantitative Easing: More inflation but not more activity? Benoît HEITZ (July 2012) N°8 Turkey: An atypical but dependent monetary policy Régis GALLAND (July 2012) N°7 China: Foreign direct investment outflows— much ado about nothing Sopanha SA, Meno MIYAKE (May 2012) 19 ECONOTE | N°28 – MARCH 2015 ECONOMIC STUDIES CONTACTS Olivier GARNIER Group Chief Economist +33 1 42 14 88 16 [email protected] Juan-Carlos DIAZ-MENDOZA Latin America +33 1 57 29 61 77 [email protected] Olivier de BOYSSON Emerging Markets Chief Economist +33 1 42 14 41 46 [email protected] Marc FRISO Sub-Saharan Africa +33 1 42 14 74 49 [email protected] Marie-Hélène DUPRAT Senior Advisor to the Chief Economist +33 1 42 14 16 04 [email protected] Régis GALLAND Middle East, North Africa & Central Asia +33 1 58 98 72 37 [email protected] Ariel EMIRIAN Emmanuel PERRAY Macroeconomic & Country Risk Analysis / Macro-sectorial analysis CEI Country +33 1 42 14 09 95 +33 1 42 13 08 49 [email protected] [email protected] Nikolina NOPHAL BANKOVA Benoît HEITZ Macro-sectorial analysis Macroeconomic & Country Risk Analysis / +33 1 42 14 97 04 Western Europe [email protected] +33 1 58 98 74 26 Sopanha SA [email protected] Asia Clémentine GALLÈS +33 1 58 98 76 31 Macro-sectorial Analysis / United States [email protected] +33 1 57 29 57 75 Danielle SCHWEISGUTH [email protected] Western Europe Constance BOUBLIL-GROH +33 1 57 29 63 99 Central and Eastern Europe [email protected] +33 1 42 13 08 29 [email protected] Isabelle AIT EL HOCINE Assistant +33 1 42 14 55 56 [email protected] Valérie TOSCAS Assistant +33 1 42 13 18 88 [email protected] Nadège MENDY Assistant +33 1 58 98 66 21 [email protected] Sigrid MILLEREUX-BEZIAUD Information specialist +33 1 42 14 46 45 [email protected] Thibaut FAVIER Statistic studies +33 1 58 98 79 50 [email protected] Société Générale | Economic studies | 75886 PARIS CEDEX 18 http://www.societegenerale.com/en/Our-businesses/economic-studies Tel: +33 1 42 14 55 56 — Tel: +33 1 42 13 18 88 – Fax: +33 1 42 14 83 29 All opinions and estimations included in the report represent the judgment of the sole Economics Department of Societe Generale and do not necessary reflect the opinion of the Societe Generale itself or any of its subsidiaries and affiliates. 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