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May’s fall in euro-zone CPI inflation and the drop in the German unemployment rate were rare pieces of good news for the beleaguered euro-zone. But the recent sharp falls in measures of business sentiment and activity and the deepening debt crisis mean …
31st May 2012
The Swedish GDP figures for Q1 suggest that the economy is withstanding the eurozone fiscal crisis pretty well. But we still think that Sweden is set for a bumpy ride andthat the Riksbank will reduce interest rates further. … Swedish GDP (Q1 …
30th May 2012
A worsening domestic economy and limited scope for the state bank reconstruction fund (FROB) to defuse Spain’s banking crisis, make an EU/IMF bail-out package look unavoidable. But in our view, it is unclear that such a bail-out can address Spain’s …
The latest monetary data confirm that the ECB’s generous liquidity measures are not prompting banks to lend more to the rest of the economy. … Euro-zone Monetary Indicators Monitor …
May’s EC business and consumer survey underlined the enormity of the task facing euro-zone policymakers if they are going to convert the growing “consensus” on the need for stronger growth across the region into actual results. … Euro-zone EC Survey …
The Swedish GDP figures for Q1 suggest that the economy is withstanding the euro-zone fiscal crisis pretty well. But we still think that Sweden is set for a bumpy ride and that the Riksbank will reduce interest rates further. … Swedish GDP …
Recent fiscal data suggest that Greece and Spain will struggle to meet their existing budget deficit forecasts for 2012 without implementing further austerity measures. But for now at least, the remaining troubled euro-zone economies are broadly on track …
29th May 2012
Markets have reacted positively to some signs of growing support for the pro-bail-out parties amongst Greek voters. But the formation of a government headed by New Democracy is unlikely to end deposit runs or the economic slump. Accordingly, the rest of …
28th May 2012
European policymakers focused again last week on the need for growth in the region, with Wednesday’s informal EU summit ending in pledges to speed up structural reforms, strengthen job creation and encourage investment using “Project Bonds”. But all of …
Even after the recent falls, the euro exchange rate does not appear to incorporate a significant “break-up premium”. As such, we see scope for further considerable declines as the crisis continues. … The euro has yet to price in a …
24th May 2012
Many commentators argue that even though Greece might benefit from leaving the euro-zone in the long run, an immediate exit would result in the Government running out of money with potentially catastrophic results. But we are not wholly convinced by this. …
May’s business surveys confirmed the picture of falling economic activity in the euro-zone as a whole and suggest that the downturn has now really hit Germany. … Euro-zone Composite PMI & German Ifo Survey …
A partial break-up of the euro-zone, with the weakest economies leaving and the core holding together, could be part of the solution to Europe’s problems, rather than the disaster that many assume. As such it would ultimately be positive for the rest of …
23rd May 2012
The renewed escalation of the euro-zone crisis has prompted calls for the European Central Bank to take more action. But whilst the ECB has scope to provide more support without taking unacceptable risks with inflation or its own solvency, there are major …
GDP data for Q1 this year showed Norway’s economy expanding at a very healthy pace. But on balance, we think the adverse effects of the euro-zone debt crisis will prompt Norges Bank to cut its key policy rate further this year. … Norwegian GDP (Q1 …
22nd May 2012
Despite much confusion on this point, there does not appear to be any insurmountable legal barrier to a country leaving the euro and remaining within the European Union (EU), even without the prior agreement of other member states. Nor is it absolutely …
GDP data for Q1 this year showed Norway’s economy expanding at a very healthy pace. But on balance, we think the adverse effects of the euro-zone debt crisis will prompt Norges Bank to cut its key policy rate further this year. … Norwegian GDP …
Calls for jointly issued “euro-bonds” are growing louder again. But they are unlikely to be implemented quickly or effectively enough to prevent some form of euro-zone fragmentation. … Euro-bonds can't keep the euro-zone …
Markets have come around to our long-held view that some form of euro-zone break-up is likely, but opinion remains divided on the likely economic and financial fall-out. While even a limited and well managed break-up will have some nasty short-term …
21st May 2012
Developments last week shed more light on the course of events which could culminate in the exit of Greece from the euro-zone. The failure of the political parties to form a coalition or even appoint another technocratic government has increased the risk …
Our view that the euro-zone needs to break up has become more widely accepted, but many commentators still argue that, in practical terms, it simply can’t happen. In this Focus, we outline the mechanics of how a country could leave the euro. While the …
17th May 2012
The recent rapid decline in Greek bank deposits underlines our warnings that it could be pressures on the banking system which provide the primary trigger for some form of euro-zone break-up. … Will falling bank deposits force Greece …
One often advanced reason why Greece and other countries simply could not leave the euro-zone is the potential damage to the institution at the core of the currency union, the European Central Bank. But this might not be as big an obstacle as it looks. …
Domestically, Portugal’s economy suffers from a broader range of factors dragging on medium-term growth prospects than its peripheral European peers. And externally, an imminent euro-zone exit by Greece threatens to push Portuguese bond yields still …
16th May 2012
A victory for Greece’s anti-bail-out parties in the June election would not necessarily mark the end of the bail-out deal. But any agreement which is reached between the Government and the troika is unlikely to last and we still think it is only a matter …
Recent developments in the euro-zone have supported our view that a limited form of break-up will commence this year with the exit of Greece. But there are clear risks of a bigger break-up. … Why and how will the euro-zone break …
15th May 2012
The direct economic and financial effects of a Greek exit from the euro-zone need not be catastrophic. The key question remains whether the policymakers can prevent contagion effects from prompting a bigger and much more damaging break-up of the currency …
The provisional Q1 euro-zone GDP figures revealed that the economy has narrowly avoided a technical recession – temporarily. But the region remains worryingly reliant on growth in Germany and a renewed contraction seems almost inevitable this year. … …
Suggestions that higher German inflation will allow the euro-zone’s peripheral economies to regain lost competitiveness look hopelessly optimistic. Those countries still face deep and prolonged wage and price adjustments if they are to improve their …
14th May 2012
March’s euro-zone industrial production data confirm the weak underlying health of the sector and support the view that the outlook for the wider economy remains pretty bleak. … Euro-zone Industrial Production …
Political deadlock in Greece has reignited fears it could be on cusp of a euro-zone exit. The most likely outcome of another election is a victory for the pro-bail-out New Democracy and PASOK parties. But neither are natural bedfellows and with voters’ …
The failure of the Greek election to produce a new government provides some support to our view that Greece could leave the euro-zone as soon as the end of this year. … Greek election deadlock raises euro exit …
8th May 2012
March’s sharp rise in German industrial production reduces the risk that the economy is already in recession. But the underlying picture is still one of a sharp slowdown in the sector which will leave GDP growth muted at best this year. … German …
Despite weaker survey data, the ECB is in no hurry to sanction further measures to boost euro-zone growth. It feels the existing accommodative policy stance is providing the region with the basic tools it needs for sustainable recovery. But national …
7th May 2012
The ECB held its main refinancing rate at 1% today but perhaps more interestingly, appears to have favoured the path of ‘austerity’ in the euro-zone region. Developments on inflation were deemed to be in line with price stability over the medium term, …
3rd May 2012
Banks’ purchases of sovereign debt have helped to lower some euro-zone governments’ borrowing costs. But they cannot solve the broader debt crisis and may even deepen it by further increasing the inter-reliance of governments and their domestic banking …
2nd May 2012
The growing calls for euro-zone policymakers to shift their emphasis from austerity to growth have been fuelled by the continued deterioration in the outlook for the economy. Key forward-looking activity indicators have now fully reversed the modest …
The latest data on the state of the euro-zone labour market and manufacturing sector underline the enormity of the challenge facing policymakers to respond the growing calls for growth across the region. … Euro-zone Unemp. & Final Man. PMI …
Peripheral euro-zone economies continue to struggle to make further inroads into their budget deficits. Although this partly reflects temporary factors, the deteriorating growth outlook suggests that these economies may fail to meet their fiscal goals for …
1st May 2012
A fragile banking sector is one factor threatening to put further upward pressure on Spanish government bond yields. And with the economy back in recession and labour market conditions continuing to deteriorate, the chances that Spain will require an …
François Hollande’s promises of a pro-growth strategy and a stronger leadership role in Europe have raised hopes about France’s economic outlook. But his bold words have so far been backed by few firm plans and we think that a Hollande victory would carry …
Greece’s general election should result in the formation of a new Government that is, on paper at least, committed to the terms of the recently agreed second bail-out deal. But with the economy still in freefall and public debt unsustainably high, the …
30th April 2012
The latest monetary data revealed a further pick-up in broad money supply growth following generous ECB lending. But while banks seem to be using some of the money to buy government bonds, they are still reducing their lending to the private sector. … …
April’s euro-zone CPI inflation data confirmed that inflation remains stubbornly high. Over the coming months, we expect inflation to fall, but only gradually, ensuring that the squeeze on households’ real incomes continues. … Euro-zone Flash CPI (Apr.) …
Last week saw what appeared to be an encouraging outbreak of unity amongst euro-zone policymakers on the need to supplement fiscal austerity with bigger efforts to boost economic growth. But talk is cheap and it is far from clear that effective action to …
At its forthcoming policy meeting, the ECB will resist pressure for it to take bolder action to solve the euro-zone’s problems. Despite acknowledging that the economic outlook has deteriorated, President Mario Draghi seems set to argue that the ECB has …
26th April 2012
April’s EC business and consumer survey confirmed the downbeat picture painted by other recent indicators and dashed any lingering hopes that the euro-zone economy may escape a double-dip recession. … Euro-zone EC Survey …
The backlash against austerity in the euro-zone could improve the region’s growth outlook. But it brings new dangers too, not least by putting dissenting countries on a collision course with Germany. … Austerity backlash brings new …
24th April 2012
The pace of decline within both euro-zone manufacturing and services quickened during the month. The composite euro-zone flash PMI supports our view that the region will experience recessionary conditions during the course of this year. … Euro-zone …
23rd April 2012
The recent resilience of the German economy has prompted us to become a little more upbeat regarding its prospects. But notwithstanding the continuing falls in unemployment, we suggest that talk of a consumer boom is rather far-fetched. … German …
