In recent years, several migratory trends have emerged. In Europe, the most notable development is the emergence of flows from southern and eastern countries to northern and western states. It is noticeable that the southern nations tended to be worse effected by the euro area crisis and that eastern nations tend, on average to have lower per capita incomes. Refresh the chart in your browser | Edit chart in Datastream But, how far can economics go towards explaining these trends? In an attempt to identify the factors driving intra-EU migration Fathom has developed its own model. According to the model, a country’s

Across the euro area economies the degree of policy looseness is the greatest it has been since our series began in 1999, potentially explaining why the common currency area has been enjoying such a strong cyclical upturn recently. However, the ECB has announced that, from September of this year, monthly asset purchases will be halved to €15bn a month and phased out altogether by the end of 2018. We also expect that the composition of the ECB’s Governing Council will become more hawkish over the coming year. We believe that GDP growth across the currency bloc peaked in 2017, with

Recent events have reminded us all that a week is indeed a long time in the world of Italian politics. Fears that new elections were imminent sent markets briefly into turmoil, causing the largest one-day increase in Italian yields since the inception of the euro. Although some of this has since unwound heightened volatility is likely to remain. Refresh the chart in your browser | Edit chart in Datastream Equities took a battering, with banking stocks particularly affected. In the case of Italy, Fathom’s Financial Vulnerability Indicator (FVI) has been flashing red for some time — relative to its own historic average,

Since peaking in January, Fathom’s Economic Sentiment Indicator (ESI) for the euro area as a whole fell for two straight months. It remained broadly flat in April at 1.3%, as the downward trajectory of weaker survey data across the bloc continued into the second quarter of 2018. Refresh the chart in your browser | Edit chart in Datastream Digging deeper into the country detail uncovers more of a mixed bag, as small increases in France and Spain were offset by declines in the other series, particularly in Germany. Refresh the chart in your browser | Edit chart in Datastream Weak Ifo and PMI readings

Our UK Economic Sentiment Indicator (UK ESI), which distils information from numerous consumer and business surveys into one gauge of underlying economic activity, nudged lower in April. Marking a continuation of the recent downward trend, the vast majority of survey respondents felt less confident in April than in March. The construction sector was the exception to the rule, perhaps reflecting a rebound in sentiment following the adverse weather in the first quarter. Refresh the chart in your browser | Edit chart in Datastream Meanwhile, despite the year-long squeeze on real household incomes coming to an end in February, consumer confidence remains in

Last Thursday, the MPC again voted 7–2 to keep Bank Rate on hold at 0.50%. Following recent remarks by Governor Carney, a ‘no change’ decision was widely expected by investors. As recently as one month ago, investors viewed the prospect of a rate hike by the end of this year as virtually certain. By close of business the day before the MPC vote, the chances had faded to just over 70%. Immediately following publication of last Thursday’s Inflation Report, market-implied odds fell to just over 60%. Refresh the chart in your browser | Edit chart in Datastream According to Thursday’s Inflation Report,

Global equity markets have regained their poise even though trade negotiations between the US and China recently hit a deadlock. Our China Exposure Index weights together US listed-firms that derive a large proportion of their revenue from China and would therefore be most sensitive to retaliatory sanctions in a trade war. On 29 March we highlighted that investors in these firms did not seem to be overly concerned about a deterioration in US–Sino relations — since then, the CEI dropped six points before steadying last week. Refresh the chart in your browser | Edit chart in Datastream The strong dollar and the

Fathom’s probability of default indicators calculate the market-implied probabilities of sovereign defaults based upon credit default swaps. The latest data suggest that the market views the likelihood of any European sovereign defaulting as remote, with the indicators for all countries bar Greece remaining below 10%. Refresh the chart in your browser | Edit chart in Datastream For Greece, the likelihood of default remains high — the market views the probability of a default by the euro area’s most indebted nation within the next five years as 28%. Such concerns are likely to be highlighted this summer as Greece seeks to negotiate a

In the aftermath of the Great Recession of 2008–09, there were serious concerns about the fragility of euro area government finances. Fathom uses CDS spreads to calculate the market-implied probability of a euro area sovereign defaulting on its debt. These proprietary indicators were broadly unchanged in February and, with the exception of Greece, remained below 10%. This represents a vast improvement relative to levels seen through 2011 and into 2012 at the height of the euro area crisis, and can be attributed to reductions in government budget deficits. Refresh the chart in your browser | Edit chart in Datastream However, declining budget

Fathom retains a pessimistic view of the euro area’s long-term prospects, unless progress is eventually made towards transforming the currency bloc into a fully-fledged fiscal union. There are, however, tentative signs of progress in this regard, with President Macron of France proposing a series of reforms to address some of the euro area’s structural flaws. In any case, Fathom acknowledges that the near-term outlook is far brighter, with the union’s strong cyclical upswing expected to continue this year. In few places are the short-term signs more encouraging than in Germany. On a calendar-adjusted basis, its economy grew by 2.5% in

The Fathom Macroeconomic Policy Indicator (FMPI) weights together measures of both the monetary and fiscal stance to summarise, in a single statistic, the degree of macroeconomic stimulus in any given country. Refresh the chart in your browser | Edit chart in Datastream As our chart shows, although the overall stance of policy has been at least moderately loose across the major economies since the crisis hit in 2008, it became substantially more stimulative last year. Much of this reflected an easing of monetary policy as headline inflation rose against largely unchanged nominal rates of interest. The degree of stimulus across the euro

On the surface it appears that Italy is finally beginning to enjoy a cyclical upswing similar to the rest of the euro area, with growth having accelerated in 2017. Fathom, however, predicts that this upturn will be short-lived. In the long term, structural problems (including excessive levels of debt, the prevalence of non-performing loans, a declining population and anaemic productivity growth) will continue to hamper the Italian economy. In the near term, uncertainty surrounding the upcoming election, and the possible introduction of a parallel currency, may weigh on confidence heading into 2018. Refresh the chart in your browser | Edit chart in