New Covid restrictions another headwind

Several euro-zone governments have tightened coronavirus rules lately and more measures are on the cards, including in Germany. On the whole, these are set to be less severe than they were earlier this year and have less economic impact. But “lockdowns” in parts of Austria suggest there are big downside risks.
Andrew Kenningham Chief Europe Economist
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European Economics Weekly

Euro-zone GDP barely grew in Q4, inflation risks rise

Data released this week suggest that our assumption that euro-zone GDP rose by 0.2% in Q4 could be too optimistic, but we still think that the economy will grow in Q1. Meanwhile, rapid house price inflation adds to the case for the ECB to, in Jay Powell’s words, start thinking about thinking about raising interest rates.

14 January 2022

European Data Response

German GDP (2021)

Provisional data showing that Germany’s GDP increased by 2.7% last year and news that it shrank in Q4 underlines that its recovery has lagged many of its peers, including the US, France and the UK. We think that German GDP will expand by less than the consensus expects this year too.

14 January 2022

European Economics Update

ECB likely to raise rates to zero in 2023

With pandemic-related inflationary pressures proving a bit more intense and persistent than we had anticipated, and policymakers sounding more willing to tighten policy, we think the ECB is most likely to end net asset purchases in December 2022 and raise its deposit rate to zero by end-2023. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

12 January 2022

More from Andrew Kenningham

European Data Response

German Inflation (October)

The breakdown of October’s inflation data confirms that most of the increase, from 4.1% in September to 4.6% on the HICP measure, was due to higher energy prices. We suspect that inflation will edge up a bit further before year-end but it should then come down next year as energy inflation declines.

10 November 2021

European Chart Book

Recovery slowed by supply chain problems

Economic growth has slowed sharply as output approaches its pre-pandemic level. We think that GDP will probably increase by only around 0.5% q/q in the final quarter, down from 2.2% in Q3. Manufacturing firms in Germany are struggling more than most and a large majority of them are reporting shortages of materials. At the same time, price pressures have continued to increase, with both the input price and output price components of the euro-zone Composite PMI reaching record highs in October. The euro-zone inflation rate reached 4.1% in October and is likely to edge up a bit further before year-end. However, it should then fall over the course of 2022 as energy inflation declines. The ECB is likely to leave its key policy rate unchanged at -0.5% throughout next year, and probably well beyond that, as it will continue to judge that the increase in inflation will prove transitory.

8 November 2021

European Economics Weekly

ECB pushes back as inflation pressures build

ECB policymakers were out in force this week insisting that the Bank will not raise rates next year. We agree that they are very unlikely to do so, not least because we think the Bank’s inflation forecast for 2024 is likely to remain below 2% throughout next year. Next week the detailed German inflation data for October will show what drove the headline rate up to 4.6% and euro-zone industrial production data are likely to show that output fell by nearly 1% m/m in September.

5 November 2021
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