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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 Update

Rhine troubles add to pressure on German industry

The fall in the Rhine’s water level is a small problem for German industry compared to the gas crisis, or indeed the recent shortage of semiconductors. But if it persists until December it could subtract 0.2ppts from GDP in Q3 and Q4 and add a touch to inflation.

10 August 2022

European Economics Focus

How big is the threat of an end to Russian gas exports?

An end to Russian gas exports to Europe would prompt us to forecast a deeper recession in the euro-zone this winter than we currently anticipate. The hit would come partly through higher inflation, which would further squeeze real incomes, and partly through gas rationing, which would particularly affect industry. As an illustrative scenario we think the combined effect would reduce annual GDP by around 2% in the euro-zone next year relative to our current forecast.

9 August 2022

European Economics Weekly

Heading for recession, ECB using PEPP flexibility

The activity data published this week add to the evidence that the economy is heading for recession. Meanwhile, the ECB published data showing the degree of flexibility that it has applied to its PEPP reinvestments - while this has been enough to contain bond spreads so far, we think there is a good chance that the Bank’s new spread-fighting tool will eventually have to be used.

5 August 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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