FLASH ECONOMICS

ECONOMIC RESEARCH

July 28, 2015 - No. 606

What would growth be now in Germany,

France, Spain and Italy if the oil price had
not fallen and the euro had not
depreciated?
Since the start of 2014, euro-zone countries have benefited from two very
favourable developments: the fall in the oil price and the depreciation of the
euro. To assess the strength of euro-zone countries endogenous growth
momentum due merely to domestic developments in the countries and
without any contribution from positive exogenous shocks, we must
therefore estimate what their growth would have been now without the fall in
the oil price and the depreciation of the euro, which mainly have an impact
on real household income, exports and corporate profitability, and therefore
normally on investment and import prices.
We find that without a fall in the oil price and a depreciation of the euro,
year-on-year growth in the first quarter of 2015 would probably have been:
-

0.25% per year in Germany instead of 0.95% per year;

0% per year in France instead of 0.8% per year;
-1.0% per year in Italy instead of 0.1% per year;
1.5% per year in Spain instead of 2.65% per year.

So only Spain has endogenous growth that does not stem from the fall in the
oil price and the depreciation of the euro.

Author:
Patrick Artus

F L A SH

Growth due to
positive shocks,
growth due to the
economies domestic
growth momentum

The euro zone is benefiting from the fall in the oil price, which is reducing the cost
of imported energy (Chart 1) and the depreciation of the euro that is stimulating
exports (Chart 2).

Chart 1
Euro zone: Energy imports (in value terms)
6

As % of nominal GDP (LH scale)

In EUR bn per year (RH scale)

Chart 2
Global trade, exports and euro/dollar exchange rate
Global trade (in volume terms, Y/Y as %, LH scale)
Euro zone: total exports (in volume terms, Y/Y as %, LH scale)
Dollar/euro exchange rate (EUR 1 = USD..., RH scale)

600

20

1,6

400

10

1,4

300

1,2

200

-10

1,0

100

-20

500

4
3
2
1
Sources: Datastream, Natixis

0
02 03 04 05 06 07 08 09 10 11 12 13 14 15

Sources: Datastream, ECB, Natixis

0,8
02 03 04 05 06 07 08 09 10 11 12 13 14 15

There are therefore two sources of growth in euro-zone countries:

-

These two positive exogenous shocks;

Endogenous domestic momentum driving growth.

We want to analyse the ability of Germany, France, Spain and Italy to regain
growth by calculating what growth would have been now in these four
countries without the two positive shocks (without the fall in the oil price and the
depreciation of the euro).

What would growth

be now in Germany,
France, Spain and
Italy without the fall
in the oil price and
the depreciation of
the euro?

Flash 2015 606 - 2

A fall in the oil price stimulates growth by increasing real household income,
and therefore normally household spending (except if there is a sharp rise in
the household savings rate), and by increasing corporate earnings and
therefore normally corporate investment;

A depreciation of the euro boosts exports, which may also lead to a rise in
corporate investment if the capacity utilisation rate becomes high. It enables
companies to increase their prices and therefore their profits, but it reduces
real income because of the rise in import prices.

F L A SH

Let us look at the trends in these different variables in Germany, France, Spain and
Italy.

1. Oil price, inflation, real household income, household demand

The fall in the oil price led to a decline in inflation and to a rise in real wage
growth (Charts 3A, B, C and D, Table 1) in year-on-year terms in the first quarter
of 2015 of around:

0.7 percentage point in Germany;

1.1 percentage point in France;
0.9 percentage point in Spain;
0.8 percentage point in Italy.

Chart 3B
Inflation (CPI, Y/Y as %)

Chart 3A
Inflation in the energy sector (CPI, Y/Y as %)

30

Germany
Spain

France
Italy

20

30
20

10

10

-10

-10

-20

-20

Italie

0
-1

Sources: Datastream,
national sources, Natixis

-2

-2
02 03 04 05 06 07 08 09 10 11 12 13 14 15

02 03 04 05 06 07 08 09 10 11 12 13 14 15

Chart 3D
Real per capita wage
(deflated by consumer price deflator, Y/Y as %)

Chart 3C
Nominal per capita wage (Y/Y as %)
Germany
Spain

France

Espagne

-1

Sources: Datastream,
Eurostat, Natixis

Germany

France
Italy

Germany
Spain

France
Italy

2
0

-2

-2

-2

-2

-4

-4

-4

-6

-6

-4
Sources: Datastream, Eurostat, Natixis

-6
02 03 04 05 06 07 08 09 10 11 12 13 14 15

Sources: Datastream, national sources, Natixis

-6

02 03 04 05 06 07 08 09 10 11 12 13 14 15

Flash 2015 606 - 3

F L A SH

Table 1
Weight of energy in CPI (as %)
Germany

France

Spain

Italy

2002

9.2

8.0

8.7

6.3

2003

9.4

8.2

9.1

6.2

2004

9.7

7.9

9.1

5.8

2005

9.9

8.7

9.0

6.4

2006

11.1

9.1

9.4

6.6

2007

11.2

8.8

9.7

8.6

2008

11.9

8.7

9.9

8.2

2009

11.7

8.1

10.4

7.8

2010

11.6

8.2

10.2

7.5

2011

12.3

9.3

10.8

8.4

2012

12.6

9.9

11.6

9.6

2013

12.4

9.5

12.4

10.0

2014

11.9

9.8

12.3

9.1

2015

11.8

9.4

12.4

10.0

Sources: Datastream, Eurostat, Natixis

The result has been an increase in household consumption, given the faster
increase in real household income and in the savings rate (Charts 3E, F and G) in
the first quarter of 2015 of:

0.5 percentage point in Germany;

0.8 percentage point in France;
1.1 percentage point in Spain;
0.8 percentage point in Italy.

As regards household housing investment (Chart 3H), we see a significant

upturn in Spain (7 percentage points) and Italy (4 percentage points), but not in
Germany or France.
Chart 3F
Gross household savings rate (as %)

Chart 3E
Real household disposable income
(deflated by consumer price deflator, Y/Y as %)
Germany
Spain

Germany
Spain

France
Italy

France
Italy

18

18

16

16

14

14

12

12

-2

-2

10

10

-4

-4
-6

-6
-8

Sources: Datastream, Eurostat, Natixis

02 03 04 05 06 07 08 09 10 11 12 13 14 15

Flash 2015 606 - 4

8
Sources: Datastream, Natixis

-8

6
02 03 04 05 06 07 08 09 10 11 12 13 14 15

F L A SH

Chart 3G
Household consumption
(in volume terms, Y/Y as %)
Germany
Spain

Chart 3H
Household housing investment
(in volume terms, Y/Y as %)
Germany
Spain

France
Italy

France
Italy

15

15

10

10

-5

-5

-10

-10

-2

-2

-4

-4

-20

-6

-25

-15
Sources: Datastream,
Eurostat, Natixis

-6
02 03 04 05 06 07 08 09 10 11 12 13 14 15

-15
-20

Sources: Datastream,
Eurostat, Natixis

-25
02 03 04 05 06 07 08 09 10 11 12 13 14 15

2. Depreciation of the euro and import prices

A depreciation of the euro, conversely, has a negative impact on real household
income by driving up import prices.
Chart 4A shows the trend in the euro's nominal trade-weighted exchange rate,
Chart 4B in non-energy import prices (above we looked at the impact of the fall in
the oil price in euros).

Chart 4A
Euro zone: Nominal trade-weighted exchange rate*
2002:1 = 100 (LH scale)

Chart 4B
Non-energy import prices (Y/Y as %)

Y/Y as % (RH scale)

140

20

130

15

120

10

110

100

90

-5

80
70

(*) Rise = nominal

appreciation of the currency

-10
Sources: Datastream, Natixis

-15

02 03 04 05 06 07 08 09 10 11 12 13 14 15

15
12
9
6
3
0
-3
-6
-9
-12
-15

Germany

France

Spain

Italy

15
12
9
6
3
0
-3
-6
-9
-12
-15

Sources: Datastream, Natixis

02 03 04 05 06 07 08 09 10 11 12 13 14 15

The rise in non-energy import prices is cancelling out (given the weight of
imports, Charts 4C and D) the following percentage of the fall in oil prices :

60% in Germany;
45% in France;
60% in Spain;
55% in Italy.

Flash 2015 606 - 5

F L A SH

Chart 4D
Non-energy imports (as % of nominal GDP)

Chart 4C
Energy imports (as % of nominal GDP)
7

Germany
Spain

7
Germany
France

France
Italy

30

30

28

28

26

26

24

24

22

22

20

20

18

18

Spain
Italy

2
16

16

Sources: Datastream, national sources, Natixis

Sources: Datastream, national sources, Natixis

14

14

02 03 04 05 06 07 08 09 10 11 12 13 14 15

02 03 04 05 06 07 08 09 10 11 12 13 14 15

We therefore correct the positive impacts on household demand from the fall in the
oil price seen above by these negative impacts caused by the rise in non-oil import
prices.

3. Depreciation of the euro and exports

We seek to determine to what extent the depreciation has boosted the exports
of the four largest euro-zone countries (Charts 5A, B, C and D).

Chart 5A
Global trade, exports and euro/dollar exchange rate

Chart 5B
Global trade, exports and euro/dollar exchange rate

Global trade (in volume terms, Y/Y as %, LH scale)

Germany: exports (in volume terms, Y/Y as %, LH scale)
Dollar/euro exchange rate (EUR 1 = USD..., RH scale)

Global trade (in volume terms, Y/Y as %, LH scale)

France: exports (in volume terms, Y/Y as %, LH scale)
Dollar/euro exchange rate (EUR 1 = USD..., RH scale)

20

1,6

20

1,6

10

1,4

10

1,4

1,2

1,2

-10

1,0

-10

1,0

0,8

-20

Sources: Datastream, ECB, Natixis

Sources: Datastream, ECB, Natixis

-20
02 03 04 05 06 07 08 09 10 11 12 13 14 15

Flash 2015 606 - 6

0,8
02 03 04 05 06 07 08 09 10 11 12 13 14 15

F L A SH

Chart 5C
Global trade, exports and euro/dollar exchange rate

Chart 5D
Global trade, exports and euro/dollar exchange rate

Global trade (in volume terms, Y/Y as %, LH scale)

Spain: exports (in volume terms, Y/Y as %, LH scale)
Dollar/euro exchange rate (EUR 1 = USD..., RH scale)

Global trade (in volume terms, Y/Y as %, LH scale)

Italy: exports (in volume terms, Y/Y as %, LH scale)
Dollar/euro exchange rate (EUR 1 = USD..., RH scale)

20

1,6

10

1,4

1,2

1,0

-10

20

1,6

10

1,4

1,2

-10

1,0

-20

0,8

Sources: Datastream, ECB, Natixis

0,8

-20
02 03 04 05 06 07 08 09 10 11 12 13 14 15

-30

Sources: Datastream, ECB, Natixis

0,6

02 03 04 05 06 07 08 09 10 11 12 13 14 15

Given the weight of exports in GDP, the depreciation of the euro would have
increased exports in the first quarter of 2015 by:

1.0 percentage point in Germany;

1.8 percentage point in France;
2.3 percentage points in Spain;
1.2 percentage point in Italy.

We can also use the estimated elasticities of exports in volume terms to the
real exchange rate (0.3 in Italy; 0.4 in Germany; 0.7 in France; 0.8 in Spain). This
then leads to similar estimates given the reaction lag of imports.

4. Corporate profitability and investment

The fall in the oil price and the depreciation of the euro are improving corporate
profitability. The result may be an increase in corporate investment. It may also
react to the increase in exports if it leads to a high capacity utilisation rate.
A fall in the oil price reduces the price of companies intermediate consumption and
therefore drives up their value added deflator. A depreciation of the euro enables
companies to increase their selling prices. We can therefore look at the impacts of
these developments on profitability by comparing GDP deflators and unit labour
costs (Charts 6A, B, C and D). Since the start of 2014, the GDP deflator/unit
labour cost ratio has not risen anywhere.

Flash 2015 606 - 7

F L A SH

Chart 6B
France: GDP deflator and unit labour cost
(2002:1 = 100)

Chart 6A
Germany: GDP deflator and unit labour cost
(2002:1 = 100)
120

120

(1) GDP deflator

(1) GDP deflator

130

(2) Unit labour cost

(2) Unit labour cost

115

130

115

(3) Ratio (1) / (2)

110

110

105

105

100

100

125

125

(3) Ratio (1) / (2)

120

120

115

115

110

110

105

105

100
Sources: Datastream, Natixis

95

95

95

02 03 04 05 06 07 08 09 10 11 12 13 14 15

140

95

02 03 04 05 06 07 08 09 10 11 12 13 14 15

Chart 6C
Spain: GDP deflator and unit labour cost
(2002:1 = 100)
(1) GDP deflator
(2) Unit labour cost
(3) Ratio (1) / (2)

100
Sources: Datastream, INSEE, Natixis

Chart 6D
Italy: GDP deflator and unit labour cost
(2002:1 = 100)
(1) GDP deflator
(2) Unit labour cost
(3) Ratio (1) / (2)

140

140

130

130

130

130

120

120

120

120

110

110

110

110

100

100

100

100

90

90

90

140

Sources: Datastream, Istat, Natixis

Sources: Datastream, INE, Natixis

02 03 04 05 06 07 08 09 10 11 12 13 14 15

90
02 03 04 05 06 07 08 09 10 11 12 13 14 15

Chart 7A shows capacity utilisation rates, Charts 7B and C the trend in productive
investment. Capacity utilisation rates remain below average except in Italy.
Chart 7A
Capacity utilisation rate (as %)
Germany

France

Spain

Italy

Chart 7B
Productive investment
(in volume terms, 2002:1 = 100)

90

90

85

85

80

80

75

75

70

70

65

180

02 03 04 05 06 07 08 09 10 11 12 13 14 15

Flash 2015 606 - 8

France

Spain

Italy

180

160

160

140

140

120

120

65

100

100

60

80

Sources: Datastream, Natixis

60

Germany

Sources: Datastream, Eurostat, Natixis

02 03 04 05 06 07 08 09 10 11 12 13 14 15

80

F L A SH

Chart 7C
Productive investment
(in volume terms, Y/Y as %)
Germany
Spain

20

France
Italy

20

10

10

-10

-10

-20

-20

-30

Sources: Datastream, Eurostat, Natixis

-30

02 03 04 05 06 07 08 09 10 11 12 13 14 15

The upswing in corporate investment in Spain dates from 2013, well before
the depreciation of the euro and the fall in the oil price.
Lastly, only in Italy can we ascribe a slightly faster increase in corporate
investment to the oil price and the euro's exchange rate, by 3 to 4 percentage
points.

Conclusion: What
would growth have
been without the fall
in the oil price and
the depreciation of
the euro?

Table 2 summarises the results obtained.

Without the fall in the oil price and the depreciation of the euro, growth would
have been:
-

Negative in Italy;
Virtually zero in Germany and France;
Still markedly positive in Spain.

Table 2
Growth and impact of the fall in the oil price and the depreciation of the euro

Country

Real GDP growth in

the first quarter of
2015 (Y/Y as %)

Impact of the reaction

of household demand
on growth *

Impact of the reaction

of exports on growth

Impact of the reaction

of investment on
growth

Corrected
growth in
2015 Q1**

Germany

0.95

0.20

0.50

0.00

0.25

France

0.82

0.44

0.41

0.00

-0.03

Spain

2.66

0.61

0.53

0.00

1.52

Italy

0.08

0.48

0.28

0.35

-1.03

Sources: Natixis
(*) By adding up the impact of the fall in the oil price and of the depreciation of the euro
(**) Estimated growth if there had not been any fall in the oil price and depreciation of the euro

Flash 2015 606 - 9

F L A SH

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