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We think that lower commodity prices and improved global supply conditions will bring euro-zone services inflation down from 5% in May to about 3.5% by the middle of next year. Further falls seem likely after that, but the tight labour market means that …
6th June 2023
Retail sales continue to struggle Household consumption seems to have been subdued at the start of the second quarter as retail sales were unchanged in April. And continued low levels of household confidence suggest that consumption will decline in the …
Inflation closing in on 2% Another sharp fall in headline and core inflation in May brought Switzerland within touching distance of the 0-2% range the SNB equates with price stability. But with recent comments from Chairman Thomas Jordan sounding quite …
5th June 2023
Core inflation on its way down? Data published this week showed that euro-zone core inflation fell for the second consecutive month in May. (You can read our response to the data here or watch our Drop-in on the outlook for inflation, ECB policy and …
2nd June 2023
Core inflation coming down, but won’t stop further ECB tightening May’s decline in euro-zone core inflation to a four-month low left it below the published consensus forecast and was driven in part by lower services inflation. While further gradual …
1st June 2023
Good news on inflation but core rate still high The fall in German headline inflation in May and signs that core price pressures eased echo the message from the inflation figures for France and Spain and supports the case for the ECB to limit further …
31st May 2023
Good news on inflation but core rate still high The fall in German headline inflation in May along with signs that core price pressures eased echoes the message from the inflation figures for France and Spain and supports the case for the ECB to limit …
Encouraging inflation data from France The larger-than-expected fall in headline inflation in France and the fall in both services and core goods inflation bode well for euro-zone HICP inflation which will be published tomorrow and will strengthen the …
We think that the slump in demand for mortgages will more than offset the support from the high backlog of work and result in a sizeable contraction in euro-zone construction output in the coming quarters. Euro-zone construction output – which accounts …
30th May 2023
Economy stagnating, price pressures still high The larger-than-expected fall in the EC Economic Sentiment Indicator in May is consistent with our view that the euro-zone will continue to stagnate in the second quarter. Meanwhile, firms’ selling price …
April’s money and credit data suggest that the decline in bank deposits in recent months is due to rising interest rates rather than worries about the banks’ stability. Meanwhile, bank lending remained extremely weak. Data released this morning show that …
Economic rebound likely to be short-lived The rebound in the Swiss economy in Q1 was due to robust domestic private sector demand, which more than offset a weakening in net trade. However, we expect the economy to slow over the remainder of the year as …
Fall in inflation much faster in Spain than elsewhere At face value, the fall in Spain’s HICP inflation rate to below 3% in May is encouraging for the ECB. However, it largely reflects country-specific factors which may not be replicated elsewhere for …
The labour markets in Norway and Sweden remain very tight, in line with conditions in the euro-zone. This is likely to keep services inflation high over the coming months and encourage the Norges Bank and Riksbank to raise rates further. The labour market …
26th May 2023
The big news this week was the downward revision to Germany’s estimate of Q1 GDP, which is now thought to have contracted by 0.3% q/q rather than stagnating. That pushed the economy into a technical recession as it had contracted by 0.5% in Q4 last year, …
Germany in recession and outlook poor The downward revision to Germany’s Q1 GDP means that the country has fallen into a technical recession and that euro-zone GDP probably stagnated in Q1 rather than expanding by 0.1% q/q. We expect further economic …
25th May 2023
History suggests that in the absence of a major financial shock, central banks usually leave interest rates at their peak for a year or more. That’s consistent with our view that the ECB is unlikely to start cutting interest rates until around the middle …
24th May 2023
Opposing messages from Ifo and PMIs Contradictory messages from the Ifo – which was very weak in May – and the Composite PMI mean the performance of the German economy in Q2 is uncertain. But regardless of how well the economy held up this quarter, we …
Opposing messages from Ifo and PMIs Contradictory messages from the Ifo – which was very weak in May – and the Composite PMI mean the performance of the German economy in Q2 is very uncertain . But regardless of how well the economy held up this quarter, …
The euro-zone Composite PMI fell slightly in May but is still consistent at face value with the economy expanding at a rapid pace in Q2. The survey also suggests that price pressures and the labour market both remain very strong, supporting the case for …
23rd May 2023
Resilient services sector keeping growth and price pressures strong The fall in the euro-zone flash Composite PMI from 54.1 in April to 53.3 in May left it close to the consensus and our own forecast (both 53.5) and suggests at face value that the economy …
National GDP data released so far suggest that euro-zone exports rose in Q1. However we suspect they will be more subdued in the coming quarters as a result of weak global growth. We have recently investigated the reasons behind the strength of euro-zone …
22nd May 2023
Sweden inflation surprise As of this week, coverage of Switzerland and the Nordic economies will be incorporated, along with the euro-zone, in our expanded Europe Economics service. We will continue to analyse the economic data from the Nordics and …
19th May 2023
Our best guess is that the impact of monetary policy tightening on euro-zone economic activity will be less than five percent of GDP, which is the lower end of a range estimated in an ECB Economic Bulletin paper this week. However, even that could be …
18th May 2023
The aggregate supply of labour in the euro-zone has recovered comparatively well from the pandemic, albeit with big differences between the major economies. But despite this, the labour market is very tight throughout the region and wage growth looks set …
After stalling at the end of last year export growth seems to have provided a boost to the euro-zone economy in the first quarter of 2023. However, we doubt that exports will be a major source of growth over the rest of the year given our downbeat …
17th May 2023
Core goods inflation declining, services inflation sticky Data published today confirmed that both headline and core inflation were little changed in April and that while core goods inflation has begun to fall, services inflation reached an all-time high. …
Labour market defying economic weakness The labour market has been remarkably strong so far this year and we think it will continue to hold up much better than the GDP data might suggest in the coming quarters. The second estimate of Q1 GDP confirmed that …
16th May 2023
Slump in March to be followed by further weakness The 4.1% slump in euro-zone industrial production in March was much worse than expected and means that industry was a drag on GDP growth in Q1. While the fall seems to be partly driven by one-off factors …
15th May 2023
Positive surprise brings end of tightening cycle nearer Inflation fell a bit more than we, the consensus and the Riksbank had anticipated in April, strengthening the case for the Riksbank to end its tightening cycle sooner rather than later. We still …
Over the past few years France has been an exception to the pattern in many other countries of falling labour supply and declining labour force participation. And there is no sign that this improvement is running out of steam. Total employment in France …
12th May 2023
The fragility of Sweden’s property sector hit the headlines again this week as commercial real estate firm SBB suffered a downgrade of its credit rating to “junk” status and cancelled its dividend. We covered the implications for property elsewhere but …
Greece has arguably been the positive surprise in the euro-zone over the past few years and near-term prospects look good. However, the forthcoming election may usher in a coalition government which is less committed to reforms and fiscal stability than …
10th May 2023
Core inflation edges up again The higher-than-expected core inflation rate for April supports our view that the Norges Bank will raise its key policy rate from 3.25% to a peak of 3.75% later this year. The small reduction in headline CPI inflation, from …
More dovish consensus emerging The record of the Riksbank’s April policy meeting underlines that there was unanimous agreement to slow the pace of rate hikes in future. After the 50bp hike in April, the Bank is likely to raise rates by 25bp at the end of …
9th May 2023
Our central scenario is that Italy’s public debt-to-GDP ratio will decline gradually in the long-run. However, the government will need to maintain sizeable primary budget surpluses to make that happen. The European Commission has recently made a series …
5th May 2023
April’s inflation data provided little sign that underlying price pressures are easing. Admittedly, the core rate edged down from 5.7% y/y in March to 5.6%, which was the first decline in 15 months. But that was entirely due to a decline in core goods …
Hard data released this week paint a more downbeat picture of the euro-zone economy than the latest surveys. Three points are worth highlighting. First, the data confirm that the 0.1% q/q rise in euro-zone GDP in Q1 masks a greater weakness in domestic …
Business surveys released this week suggest that Sweden’s economy started Q2 on the back foot. The Manufacturing PMI for April was unchanged at a very low level (45.5), consistent with output falling. And although the Services PMI rose, it was still close …
Headline inflation falls sharply, but core rate unchanged Falling headline inflation in Switzerland will provide relief to consumers but does not change the picture for the SNB. Underlying price pressures remain near all-time highs, which will convince …
Today’s 25bp decision was in line with market expectations and the views of most forecasters polled by Reuters – though we had been in the minority forecasting 50bp. The move marks a slowing in the pace of policy tightening and suggests at face value that …
4th May 2023
ECB slows the pace and signals peak is close The decision to raise the deposit rate by 25bp to 3.25% today was in line with market expectations and was predicted by 57 of the 69 forecasters polled by Reuters. (We had forecast 50bp.) This marks a slowing …
The Norges Bank raised its policy rate by 25bp today, to 3.25%, but unlike the Fed we think the tightening cycle in Norway has further to run. That said, we think that inflation will fall more quickly than the central bank anticipates next year, allowing …
Over the past year, Spanish households have seen a bigger increase in their cost of borrowing than those of any other large euro-zone economy, but the increase in the interest paid on deposits has been tiny. This is squeezing households’ disposable …
Policy tightening over the past year has pushed up euro-zone households’ interest costs substantially and is a key explanation for household consumption falling. With interest costs set to rise a lot further in the coming months, we expect consumption, …
3rd May 2023
Unemployment falls as the labour market remains tight The euro-zone unemployment rate fell slightly in March and looks set to stay low in the coming months amid evidence that hiring intentions have increased. Even if the labour market softens further …
Strong core inflation leaves ECB decision finely balanced The fact that core HICP inflation edged down in April will not resolve the debate between a 25bp and 50bp hike for the ECB this week – particularly as the core rate is still close to its all-time …
2nd May 2023
March’s money and credit data, as well as the Bank Lending Survey carried out in March and April, show no clear signs that the recent troubles in the US and Swiss banking sectors have had an impact on credit conditions in the euro-zone. Nevertheless, …
Strong core inflation leaves ECB decision finely balanced The small decline in core HICP inflation in April leaves it close to its all-time high and will not resolve the debate between 25bp and 50bp for the ECB this week. The trivial increase in headline …
