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February’s further improvement in ZEW investor sentiment provided some reassurance that confidence in the German economy is holding up despite the ongoing turmoil in Greece. But this could prove short-lived if Greece and the European authorities fail to …
17th February 2015
The unexpected rise in Sweden’s headline inflation rate in January will be welcomed by the Riksbank but with prices still falling on an annual basis, we think the central bank will need to cut the repo rate further and increase its asset purchase …
The latest euro-zone trade data revealed that exporters are still not fully benefiting from the depreciation of the euro. … Euro-zone Trade …
16th February 2015
The failure of the Eurogroup last week to agree even on steps for further discussions on Greece does not bode well for the emergence of a full solution at Monday’s meeting. This could prompt nerves over whether the ECB will cut off emergency funding to …
13th February 2015
Q4’s slight pick-up in euro-zone GDP growth suggests that the benefits of a falling oil price and a weaker euro are offsetting the effects of the Greek crisis for now. But growth is too weak to reduce the threat of deflation and a slowdown may be to come. …
With euro-zone leaders struggling to reach a workable solution to Greece’s debt problems, the chances of a Greek exit from the currency union have risen. In 2012, Capital Economics won the Wolfson Prize for our submission on how an exit might be best …
12th February 2015
December’s disappointing stagnation of euro-zone industrial production confirmed that the region’s economy remains far too weak to ward off the threat of deflation. … Euro-zone Industrial Production …
The Swedish Riksbank today became the latest central bank to respond to the threat of persistent deflation by pushing interest rates into negative territory and launching a quantitative easing programme. We suspect it will have to do more. … Swedish …
Greece’s apparent improvement in competitiveness and recent economic recovery might suggest that it no longer requires a weaker currency and so would have little to gain from leaving the euro-zone. But a weaker currency would help to use up the vast …
11th February 2015
Q4’s solid gain in mainland GDP maintained Norway’s position as the strongest of the Nordic economies. But the ongoing effects of the fall in oil prices are likely to depress growth further over the coming quarters, probably prompting further monetary …
Tomorrow’s meeting of euro-zone finance ministers (the “Eurogroup”) takes place against a background of extreme urgency to meet Greece’s near-term financing needs. While some solution appears possible, it won’t address Greece’s longer-term debt problems. …
10th February 2015
January’s falls in Swiss and Danish CPI inflation into or further into negative territory highlight the need for central banks to do more to prevent their respective currencies appreciating further and tackle the threat of a long and damaging bout of …
The Greek Government may need to resort to capital controls to prevent the flow of deposits from its banks, particularly if the ECB withdraws access to central bank funding altogether. But once the considerable costs of such controls had been borne, it …
9th February 2015
The latest bout of deflation in the euro-zone looks set to last rather longer than the brief period of falling prices seen back in 2009. With vast amounts of slack in the economy and inflation expectations falling, there is a bigger risk that deflation …
The rebound in Turkish industrial production growth to 2.6% y/y in December provides an encouraging sign that the economy may have emerged from its recent slump. But even so, growth over Q4 as a whole was extremely weak. Meanwhile, although Czech …
Several developments last week arguably brought Greece closer to exiting the euro-zone than it has ever been. While the Government appeared to give ground on its demands for debt restructuring, its terms still seem unpalatable to the Troika. And the ECB’s …
6th February 2015
The latest fiscal data suggest that the peripheral economies continued to strengthen their budget positions at the end of last year. But many look set to have missed their 2014 targets and Greece’s fiscal progress may be reversed following Syriza’s …
December’s industrial production data for Germany and Spain show few signs that the export-sensitive areas of the euro-zone economy have yet received a boost from the drop in the euro exchange rate. … German & Spanish Industrial Production …
Euro-zone economic activity has continued to recover despite the troubles in Greece. For now, worries about the crisis seem to have been offset by the benefits of a weaker euro and falling producer and consumer prices. Note, for example, that while the …
5th February 2015
The proposed plan to exchange some of Greece’s current debts for bonds linked to the performance of the economy has some attractions. But we’re not convinced at this stage that it can make a material difference to Greece’s debt outlook. … Can GDP-linked …
3rd February 2015
The Greek banking sector is once again buckling under the weight of substantial deposit outflows and market concerns about the country’s future inside the euro-zone. There is a significant risk that this becomes self-perpetuating, forcing Greece to leave …
Our concerns that the markets have been under-estimating the challenge faced by the new Syriza-led Greek Government and the Troika in trying to reach a mutually acceptable solution to Greece’s debt problems were at least partly borne out last week. Not …
30th January 2015
January’s drop in core euro-zone inflation to a record low brought further confirmation that deflationary pressures in the currency union go well beyond the effect of falling oil and energy prices. … Euro-zone Flash CPI (Jan.) & Unemployment …
While Spain’s economy continued to grow solidly in Q4 last year, deepening deflation pressures threaten to de-rail the recovery. … Spanish GDP (Q4 …
January’s drop in German HICP inflation well into negative territory highlights the strength of deflationary pressures in even the euro-zone’s strongest economies. While falls in prices should prove temporary in Germany, there are downside risks. And the …
29th January 2015
January’s small rise in the EC Economic Sentiment Indicator (ESI) did little to change the picture of very subdued growth in the euro-zone at the start of this year. … Euro-zone EC Survey …
December’s euro-zone monetary data showed that credit conditions continued to improve at the end of last year. But the recovery is still at an early stage, highlighting the need for the ECB’s latest policy support. … Euro-zone Monetary Indicators …
Expectations that Greece’s fiscal problems can be addressed by a “restructuring” of its debts overlook the fact that most of the viable adjustments have already been made. Only a substantial write-down will materially alter Greece’s debt trajectory – an …
28th January 2015
Syriza’s victory in the Greek general election may increase the influence of anti-austerity parties elsewhere in the euro-zone, most notably Podemos in Spain. But resistance from Germany seems set to limit European authorities’ ability to loosen fiscal …
27th January 2015
January’s rise in the German Ifo index suggests that fears about the effect of the Greek crisis on the German economy have so far been offset by the perceived benefits of a weaker euro and ECB quantitative easing. … German Ifo Survey …
26th January 2015
Syriza’s resounding victory in the Greek general election looks set to result in a protracted period of heightened uncertainty over Greece’s future inside the euro-zone and could threaten to reignite a broader crisis across the currency union. … Syriza …
In this Update , we outline some of the key points to look for in this Sunday’s crucial Greek election. While much is likely to depend on coalition negotiations early next week, we suspect that the process will reveal a greater risk of Greek default and …
23rd January 2015
The ECB’s Governing Council deserves credit for meeting the demandingly high level of expectations with last week’s announcement of a quantitative easing programme worth at least €1trn. The size and open-endedness of the programme appears to have trumped …
January’s small rise in the euro-zone composite PMI suggested that growth has remained very slow at the start of this year, confirming that the ECB’s latest policy support is sorely needed. … Euro-zone Flash PMIs …
The ECB’s much-anticipated quantitative easing programme appears to have met or even exceeded expectations in terms of size and shape. But we remain sceptical that it will revive the euro-zone economy or prevent an extended bout of deflation. … QE meets …
22nd January 2015
It would be one of the biggest shocks in recent monetary policy history if the European Central Bank (ECB) did not announce some form of quantitative easing (QE) today. But will it live up to expectations? This note outlines the key points to look for in …
The viability of Denmark’s currency peg with the euro has been called into question following the Swiss National Bank’s decision to abandon its exchange rate ceiling. We think that the Danish peg will ultimately hold but that the Danish Nationalbank will …
21st January 2015
The proposed plan for national central banks to implement quantitative easing for the ECB has the benefit that these banks are best-placed to design an effective policy for their own economies. But the likelihood that they will conduct the policy at their …
The onset of deflation in the euro-zone and the recent developments in Greece have served as powerful reminders of the lasting effects of the region’s debt crisis. The ECB will seek to tackle deflation with additional monetary stimulus in the form of …
20th January 2015
January’s rise in ZEW investor sentiment showed that confidence in the German economy was holding up well despite fears for Greece. But investors may take a dimmer view following this week’s Greek election or if the ECB disappoints. … German ZEW & …
The sharp appreciation of the franc caused by the Swiss National Bank’s abandonment of its currency ceiling last week led to a substantial drop in the domestic value of the SNB’s foreign currency investments. The Government should be able to recapitalise …
16th January 2015
It is virtually certain that the ECB will announce some form of quantitative easing (QE) at its Governing Council meeting on January 22nd. But given the ECB’s natural caution and Germany’s objections, we’re not very confident that the programme will be …
15th January 2015
The Swiss National Bank’s (SNB) shock decision to abandon its ceiling for the franc reflected its judgement that the policy was just not sustainable. Unless it can reverse the franc’s appreciation with other policies, the downward impact on growth and …
The widening of the euro-zone trade surplus in November to another record high encouragingly reflected a small rise in exports rather than the weakness of imports, suggesting that exporters are starting to feel the benefits of the euro’s depreciation. … …
The small increase in euro-zone industrial production in November suggests that industry may well have fared better in Q4. But it does little to alter the picture of widespread weakness in the region at the end of 2014. … Euro-zone Industrial Production …
14th January 2015
