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Mind the Output Gaps

Europe: Unemployment is still too high

Euro area unemployment is gradually declining, but the region still has a lot of labor market slack.

Unemployment across the Eurozone has fallen from a peak of 12% in 2013 to 9.5% in March. These data include a 3.9% rate in Germany, and 18.2% in Spain.

Youth unemployment was 19.6% in the first quarter of 2017, including 41% in Spain.

Quarterly wage growth in the euro area was just 1.6% at the end of 2016.

Source: Macrobond, Eurostat. As of December 2016

China: Services outpace broader inflation trend

Rising inflation is a positive development for China’s highly indebted economy.

Services prices rose 2.9% on the year in April, outpacing the 2.1% increase in core consumer price inflation (CPI).

This stronger pressure in services reflects pricing power, in line with a longer-term trend across emerging markets toward more spending on human services and experiences, such as travel, rather than material goods.

We don’t see much impact on monetary policy, which is focused on regulatory issues for now. But inflation should help devalue China’s debt stock, which recently earned the country a downgrade to A1 by Moody’s Investor Service.

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